investment mistakes to avoid- BUYING HIGH SELLING LOW
Any wise investor knows the basic principle of investment: buy low, sell high. However, investors often ignore this rule, as they get swept up in prevailing market sentiment.
When markets have stormed ahead, sentiment is positive and people are more likely to invest as they don’t want to miss out on further gains. Conversely, when markets have performed poorly, sentiment is negative and people are more likely to head for the exit due to fear of clocking up further losses.
People make too many irrational investment decisions, which are based on either greed or fear. The result is that many people invest at
the top of the market and withdraw their money at the bottom, having a thoroughly miserable experience of investing along the way.
Waiting for markets to turn the corner could mean you’ll miss the boat. Equity markets look ahead of the economy and bad news is
factored in early on. In trying to avoid losses in the short-term, investors may well miss out on the significant rebound of the market and
end up being behind the curve for any recovery.
Stocks that have gone up recently, especially those with a lot of press, often attract even more buyers. This obviously drives the price
up even higher. People get excited about what they read and see and want a part of the action. They jump into a stock that is already
trading at a premium – they buy high.
The other side of the market is when a stock has fallen; most investors may want to sell along with the rest of the market. If you go by
price alone, this can be a bad decision (sell low). There are many reasons a stock’s price drops and some of them have nothing to do
with the soundness of the investment. That’s why if you only follow price you may miss an opportunity.
Investors need to realise that emotional investing does not lead to wealth creation over the long run. Relying on emotions is a sure-shot
way to ‘buy high and sell low’. People tend to give into greed when they see everyone making money in a specific asset class, be it
stocks, gold, real estate or anything else.
If all you know about a stock is the price, you may (and likely will) make investing mistakes. Remember, if a stock has had a good run up it may be time to sell, not buy (sell high). Similarly, if a stock has dropped like a rock, it may be a good time to buy rather than sell (buy low). You won’t know what to do unless you understand a lot more about the company than its stock price.