Top 10 mistakes new investors make!
- Don't listen to share tips from friends & colleagues - This is investing for your future, not a horse race!
- Think of the Tortoise versus the Hare. Build your fund slowly, don't take mis-calculated or unnecessary risks trying to "Get Rich Quick!". It really is the fastest way to lose everything.
- Don't pay attention to the actual share price figure as an indication of how cheap a stock is. Apple trades at $185 for one share, whereas Netflix trades at $450 a share, however Apple is worth more than 10x the size of Netflix! A stock trading at 80c is no cheaper than a stock trading at $1,000. You will learn why in the next chapters!
- If a share price suddenly drops 20%, it doesn't mean it will definitely (or even probably) go back to the level where it was. Don't think of the stock market like a supermarket. Share prices do not often go on discount before rising back up (although they do sometimes!). This is the difference between value and price. Spotting the occasions when they ARE on discount is when you can make great profits!
- "It's not a loss until you sell". Hearing this phrase makes me bang my head on the wall! So many people hold on to shares in companies that they should have got rid of months ago because they find it hard to admit that they are losing. The best traders and investors are not guided by their ego or stubborness!
- Don't expect to get every trade right. Even the best fund managers ony get ideas right 60-70% of the time. The important skill is maximising the profits on the ideas you get right, and minimising the losses when you are wrong! More on this in a later chapter.
- "I'll just hold on until I'm back to flat". What your profit or loss on a trade is, is completely independent to where the share price trades. The market doesn't know or care where you bought the stock or will get back to flat. The decision has to depend on whether owning the stock is still a good idea or not... never hold a stock just because you have lost money on it.
- Discipline is everything in investing. If you can establish a set of general rules before you begin, then you will have a very successful investing career! The quickest way to lose money is by using a scatter-gun approach and just trying a bit of everything. This course will help you establish that disciplined approach, but to retain the fun at the same time!
- Every now and again, a very high conviction and incredible opportunity will appear! In these cases, don't hold back! If your instinct is telling you YES, your background research is suggesting this is great, and if it ticks all the boxes for your disciplined rules... then GO FOR IT, and take that risk! I see these kind of opportunities come up 2 to 3 times a year.
- Remember to have fun! It might not be you top number in this... but it's still important! Discuss ideas with friends over a glass of wine, or become an investing expert in an industry that you have a real passion for, or already have a deep understanding of. Learning can fun, and financial markets can be very exciting! If you can make money from it for the rest of your life, then all the better!