Committing mistakes is a part of life. Without touching fire, you won’t be able to understand the feel of burn. Warren Buffett and Rakesh Jhunjunwala are two people who are the real Guru of share market. However they also fell down several times before they reached this position. In India, people are still very conscious about investing in stock market. They prefer keeping their money in banks, post offices, etc where they get fixed returns.
This is also a true fact that there are only few people who gets succeeded in making money from share market. Whereas most of the people fail and advice to never invest in share market. Well, the saying ‘share market is not for all’ is perfectly true. But this doesn’t mean that no one should invest in share market at all.
Let me tell you, share market offers you best returns in comparison to any other form of investment options. If you invest your money in FD or RD then you will get maximum of 7.50%. However if your invest in share market there is no limit to returns. It could be 10%, 20%, 30% or even more. But the question is why people failed to earn returns? What important points they ignore which could have resulted in bringing huge amount of returns towards them. Well, in this article I am going to discuss the mistakes to avoid when investing in share market.
10 Mistakes To Avoid When Investing In Share Market
Now that you know how to invest in share market in India. Well here are certain points that you must avoid if you want to make money in share market. Since investing in share market is very tricky and you might even not realize but within a very short span of time you might lose your entire money. One should never be greedy when it comes to earning money from share market in India. The most important tip is one should never dream of becoming Richie Rich just over night. For making investment in share market, you need lots of patience.
1. Never Follow Brokers or Market Guru or Analyst Tips Blindly
One of the mistakes to avoid when investing in share market is one should not blindly follow the brokers or the market gurus. All these people are humans not God. They do not run market, their prediction could be wrong. Never forget that, the stock market is very complex and fluctuations in market occurs due to domestic as well as international factors.
On the other hand, most of the market gurus are paid by the company to say everything positive about the company. Similar is the case with the brokers, you should not blindly trust your broker. So before investing in any share, ask your broker to do the analysis of the stock and share it with you. You can also do the analysis of the share on your own if you have the proper knowledge stock evaluation.
Case – This is a live example that I am discussing on the basis of my observation and study. I received a message in my phone 3 months back from a broker enterprise saying invest in Meenakshi Enterprises. So I checked over the internet for the current price in which the share is trading. It was trading at 55. After few days, I again received a message the share will go up to 80. To my surprise when I checked after sometime, it also reaches there.
The broker enterprise keep on sending messages and have made predictions in the messages. The most surprising was it was reaches to 350. Well, I didn’t invest in it. I am a Finance student and after seeing the P/E ratio only, I come to know there is something wrong. Now when I today see the price of Meenakshi Enterprises, it is trading at Rupees 116. The entire message thing was just a hoax in order to trap the investors and nothing else. Beware of such people and such messages.
2. Timing The Market
Another mistakes to avoid when investing in share market is timing the market. Let me warn you that there is no one in this world who can actually time the market as share market is highly volatile. So if you think that you can predict the market then either you are insane or actually living in a myth. There are times when one can predict the market because of the political and international factor. But apart from that one can never predict what will happen in coming days.
One can predict, analyse, project market but can never time the market. You being the investors you must follow the trends instead of timing the market. With following of trends I mean observing the ups and downs in the price of the shares that you have shortlisted for your portfolio.
3. Using Too Much of Margins Options
You should never borrow money from outside for investment hence it is one of the most important mistake you should avoid when investing in share market. Borrowing money from outside is one of the biggest mistake which people commit while investing in share market. If you would go for any kind of financial advice then you will actually find that they would suggest you to never borrow money for investing.
When you borrow money from outside, you have to return it back at a certain interest rate. Now suppose your analysis is correct and you are able to earn profit. But from that profit, you have to pay interest. This will reduce your income. On the other hand, if you incur loss, then it will become difficult for you to even return the principal.
4. Never Believe Success Stories of Others
Several times you have encountered people who would tell you their success stories. People would tell you that they have made really good returns from their investment. This is human nature they love to boost themselves by telling their success stories to others. They won’t tell you about your failures. So never listen and believe on the success stories of others. Be a smart investor and believe in yourself.
5.Thinking That You Know Every Thing
You might have earned good returns through equity when market is going good. Since share market is said to offer highest returns in-comparison to any other form of investment. So if you were fortunate enough to earn good returns with your investment doesn’t means that you will be fortunate every time. Share market is one of the most riskier mode of investment.
As no one can predict the market even the market guru who gives you financial advises on TV’s have in reality several times have fallen on their face. So never be over-confident about predicting the market as this one of the mistakes to avoid when investing in share market in India.
6. Selling Shares When In Profit
Generally people have the habit of selling stocks when they actually start giving profits. Another mistake to avoid when investing in share market is never sell your stocks when they give you profit. Instead of selling your stocks at 10-20% profits you should wait till the time you don’t get 100% or more than that profits.
Initially even I made this mistake of selling my stocks when I got returns of about 15%. Then in years to come I noticed that the return has grown from 15% to 100%. So when you are investing in share market you actually need to have patience in you.
7. Buying Shares When In Losses
It is seen many times that, people wait for the prices of shares to fall. This might look a good strategy but let me tell you that it is actually one of the mistake. When price of a share falls, there are plenty of reasons behind it. Without doing a proper research and study never buy the share whose price is falling.
For example, price of Nestle stock an year back was around Rs 7,000 per share then after Maggie was banned in India the price of the share came down to 5,000 but then after 1 year finally the price of Nestle is Rs 6,700 per share. While there is another example of Idea Cellular whose earlier share price was Rs 120 but soon after the launch of Jio the share price of Idea cellular within 1 year came down to Rs 83 per share. Now you can cearly see from the example and see that buying shares in loss can be good but only if it will give you good return in future.
8. Investing For Shorter Time Frame
If you are the one who dreams of making quick money from share market then let me tell you are in the wrong address. As investing for shorter time frame is mistakes to avoid when investing in share market. Several times it do happen that within few days of our investment the market drops down and you might lose money. In such a situation you must wait for few years and let the market rise back and give you profits for your investment. With investment for long term I don’t mean you marry with your stocks and never sell them. No you should not do this either. Look for the right opportunity and then sell your stocks.
9. Day Trading
If you are dreaming of becoming a day trader then before acting think for thousand times. Becoming day trader and start day trading is not that easy task that you are thinking. In order to become a day trader there are various conditions that you need to fulfill first. Before starting day trading you will be needing near about Rs. 3,15,000 in your bank account. In day trading due to up and down of small penny can actually bring a lot a change in your portfolio. Hence until you don’t have enough amount of experience and knowledge my advice would be for you is to stay away from day trading.
10. Excessive Diversification of Portfolio
Diversification of portfolio is good but only upto a certain limit. Over diversification of portfolio actually leads to clueless investment. Yes you here me right. When you diversify your portfolio in excessive then you would actually not be able to handle your portfolio and might even make heavy losses. Because when you will diversify your portfolio then actually you will have to study all the sectors in depth and that to time to time which becomes very hectic task.
Now you know all the mistakes to avoid when investing in share market in India. If you avoid all these mistakes, I am sure, you will be able to make good money from investing in Indian share market. Do share you views here with us in the comment box given below. Your views are very precious for the other investors as well.