10 Mistakes a beginner should avoid

Hi there ,

Here is a list of faults that beginners in stock market usually commit. These are very common mistakes that eventually result in financial disaster. Investors who recognize and avoid these 10 common mistakes give themselves a great advantage in meeting their investment goals.


INVESTING IN LOW PRICED STOCKS

I had said in an article about buying low priced stocks for the purpose of learning the trading screen. That’s where you should stop. There is a section of people who try to invest in those companies hoping to make serious profits. This is something you should avoid.At first glance, investing in these stocks may seem like a great idea. With as little as Rs 10,000 you can get a lot of shares in a small cap stock than a blue chip like Infosys which costs 2500 on an average.   And, if the 4 Infosys shares you bought went up by Rs 25 you’d only make Rs 100 whereas if 100 shares of Rs 100 went up Rs 10, you make Rs 1000.  Small cap stocks can shoot up. It happens all the time – but they can also crash in moments and may never peak again.

PUTTING ALL IN ONE BASKET

Investing 100% of your money in stocks (or any other asset class for that matter) is never a good decision. You should always commit less capital into these markets in the beginning. Once you are familiar with them, you can afford to take more risk.

INVESTING CASH RESERVES

Getting into investing doesn’t mean you should invest to the point of illiquidity. Investing is a long-term business. So you must always have cash on the sidelines for emergencies and opportunities. Sure, cash on the sidelines doesn’t earn any returns, but having all your cash in the market is a risk that even professional investors won’t take.

BORROWING MONEY TO INVEST.

Your broker will always encourage you to go ahead with margins, explaining it’s potential to make big money. His target is to squeeze out maximum brokerage from your account. At any cost, you must not fall to this trap.

Worst still, I have heard of people pooling money , forming partnership firms or companies and getting into investing business. Their idea is to make it big at the first move itself. Such strategies never work out. All these are not recommended.

TRYING TO CASH ON ROUMORS

It’s natural for a beginner to be overenthusiastic about stocks, trying to find all sorts of information from brokers, internet, friends, investors, newspapers, magazines. Trying to guess the next Infosys or Microsoft is a terrible move for first time investors. Spotting winning stocks is an art that’s practiced and perfected with lot of effort and time. It’s not easy as you think. Ideally you should first invest in businesses that you can understand.

JUMPING IN HEAD ON

The whole process of investing boils down to one simple theory- Buy low and sell high. World over, investors and experts still make mistakes in  finding what is low and what is high in a market where everything hinges on different readings of a variety of ratios and metrics. What is high to the seller is considered low (enough) to the buyer in any transaction, so you can see how different conclusions can be drawn from the same market information. Because of the relative nature of the market, it is important to study up a bit before jumping in.

The right price for you to enter would depend on the time frame you intend to invest, the rate of return you want and the amount and risk you are willing to commit. It’s never the same for two investors. It’s important to realize this.

FOUNDATIONS FIRST

At the very least, you must  know the basic measurements and it’s meaning such as book value, P/E , Market cap, support and resistance, all time highs , 52 week highs, 52 week lows , stock indices, volume, etc.. and understand what these figures mean. The more you learn, more you’ll find that the market is much more complex than a few ratios can express, but learning those and testing them on paper can help lead you to the next level of study.

PATIENCE, PATIENCE.

Let’s assume that you decide to enter the market with a newly opened account, committing Rs 1 lakh to it. It’s not necessary to start investing from day one. If you are in a bull market, may be you’ll have to wait 3 or 6 months until a correction unfolds. It’s important to be patient.

SHORT TERM AND LONG TERM.

‘Short term’ is a really short period for most of the people. I have talked to many investors on this. To many of them, a short term is time frame of 3 to 6months and a long term is time frame of 1 to 2 years.  If that’s your idea about short term and long term, you need to correct yourself. A short term is generally referred to a time period less than 3 – 4 years and a long term is a time frame above 5 years.

PROFIT CALCULATIONS

If you buy a share for Rs 50 and sell it for Rs 65 , your profit from the transaction is not Rs 15, but an amount less than that. That’s because of the brokerage expenses involved in it. You must also consider the effect of income tax and inflation and calculate the actual profit you make, before taking a sell decision.

You may like these posts:

  1. Most common stock market mistakes.
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14 Responses to “10 Mistakes a beginner should avoid”

Mansoor

December 2, 2011 at 5:10 pm

Excellent article, Victor. I wish this article was published 4 years back, I would have saved a lot of money. Learning from other’s mistake is a good thing than committing one ourselves. But anyway, it’s never too late. I started off with almost all the mistakes you have mentioned here and fell on my face down. Now, I do a bit of research before buying. Still learning but better than before. Thanks for the article.

On a different note, I am not sure how big is your fan base in this blog because I do not see a lot of comments etc. You should spread the word about your blog, it’s awesome. I will share through social media.

Krishnan

December 18, 2011 at 11:55 pm

Hi Mr.J.VICTOR ,

Good to read this kind of Excellent article before entring the share trading ,bcoz i also stated of with all kind off mistake and with big dream now i understand to buy and sell it”s not only money envolved also time once lost never get our time back. time is more value then money slow and stady win the race .i will keep in mind all your valuable point thanks lot keep the good work.

Mahendran

June 28, 2012 at 12:44 pm

Dear sir,
i am freshly passed out student from college and working in chennai in a private company. As i would like to know basics of stock market, i have heard these terms only in the TV news. I want some more information and how to start details.
Please give your suggestions and recommendations.
Thanks in advance.

GHANSHYAM SAIN

October 11, 2012 at 5:38 pm

Victor Yar You Publish a good Artical I loose about Rs. 22000 in only 1 month due to Using 10 Times intraday limit & 4 times delivery margin. Really good work i understand u Never make Rs. 10 by investing RS 1 one Day before. But now i never use these & invest on reasonable Basis.

J Victor

October 14, 2012 at 6:18 pm

thanks:)

MURUGESAN

November 8, 2012 at 5:28 pm

HI VICTOR,

I HAVE GONE THROUGH ALL YOUR BLOGS ,IT IS TOO FANTASTIC, I STUDIED SOME BOOKS ABOUT STOCKS, BUT THIS ONE I WHOLE HEARTEDLY SAY BEST AND SPOON FEEDING FOR NOVICE. YOUR EWORKS ARE HIGHLY COMMENDABLE. I AM USING ALL MY LEISURE TIME BY STUDYING YOUR ARTICLES ONLY. REALLY UTILISING MY SPARE TIME USEFULLY.

THANKS FOR YOUR INFORMATION. KEEP IT UP

Asher

December 6, 2012 at 4:33 am

Hi Victor

The work you are doing is truly commendable. Looking forward to see your work published. All the best in life and God bless

Mike

December 6, 2012 at 1:27 pm

Hi Vic

It’s very informative. I’m planning to invest in stock market early this year. As matter of fact I have already sent my application to one of the brokerages. I also have invested in mutual funds and UITF for quite a while. Though it’s quite different from stock market because of it’s conservative nature, I’m ready to enter a more aggressive investment. Your article truly enlightened me and I will surely take every nugget of information you just shared.
Thanks a lot.

mahesh

July 30, 2013 at 9:34 pm

thank you for guiding me and mny of my frnds……

Devang

August 12, 2013 at 11:39 pm

thanku sir dor these wonderful advises given to us…
i ll definately follow them ..

Sachin

September 1, 2013 at 2:26 pm

Hi Victor Sir
Thank u for ur golden rules of share market. plz, can u help me for premarket stratergy. i dont know how to make premarket stratergy.
plz sir help me

Abhishek Kesarwani

July 19, 2014 at 1:04 pm

Dear sir,
i am freshly passed out
student from college and
working in Allahabad. As i would
like to know basics of stock market, i have heard these
terms only in the TV news. I
want some more information
and how to start details.
Please give your suggestions
and recommendations. Thanks in advance.

Suraj Kadlag

July 3, 2015 at 9:28 pm

I did most of the above mistakes. …..its really practical. ..thanks. .

Vijay Nainvani

July 19, 2015 at 2:11 am

the article is very helpful thanks a lot..

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