I would like to tell you that “I have lost money in Stock Market” way back in 2010. I was a novice investor back then and committed some mistakes which I want my readers to avoid.
One of the traits of a stock market investor is “If you avoid mistakes to lose money, then you will actually make money”.
So, I would like to inform my readers that this article is related to making money and to avoid the mistakes of losing money.
How not to lose money in Stock Market?
Don’t follow other’s recommendations without any secondary thought:
Back in 2010, I was very eager to invest in Stock market. I opened a Demat account with ICICI Direct. I had some spare money. So I switched on CNBC and blindly followed their recommendation without any second thought.I was a person with zero knowledge on Stock Market without even aware of basic terms at that time. Eventually, I suffered loss. LEARN AND THEN PLAY IN STOCK MARKET.
Don’t follow the herd:
There are a lot of WhatsApp groups, stock market community, blogs which recommend stocks for short and long term approach. Even in moneycontrol, we find MMB boards where a lot of discussions happen. But one thing to remember is “WE REALLY DON’T KNOW WHO IS ON THE OTHER SIDE OF THE CHAT”. SO DONT FOLLOW THE HERD.
SMS Scams is really growing exponentially. Daily I receive around 5 to 8 messages with Stock Buy recommendation. I still remember when a friend of mine had bought one out of these recommendations and is struggling to come out of it. The Stock I am talking about is Quasar India. Beware of these SMS that you receive. I have made a habit of not even reading those type of SMS. I just delete them. The same is the case with E-MAIL as well.
Buy Only those Stocks whose Business you understand:
I am a Value Investor and not a trader. When I think of investing in Stock market, I will always think that I am investing in the business of the company and not just to buy those stocks. I study the business of the company and then make a decision to invest or not to invest. I just want to quote Warren Buffet “RISK COMES FROM NOT KNOWING WHAT YOU ARE DOING“.
Don’t dive into Derivatives, Futures, Options and Commodities:
These are instruments played by experts. Prepare well and then enter into these segments. Because with these instruments, there is a likelihood losing more money. I would rather say that “EITHER THEY MAKE YOU RICH OR POOR“. Play cautiously. If you are unsure of what these are, I would recommend you to learn all the basics and then start small.
SELLING at Small Profit:
Are You an investor or trader? If you are a trader, I would rather say a small profit of 15% is a huge selling point. But if you are an investor and have done a value investing and you have a conviction about the business of the company, then DONT SELL IT. Three years back, I sold shares of a company when I was at 24% profit. Now, the stock is trading at 300% of the value. I lost money. I could have easily tripled my money in a 3-year time frame. I had right conviction about the business of the company but still 24% profit was luring to me. AVOID THIS MISTAKE.
Averaging on every downfall:
This is one more mistake which I have seen people committing. DON’T AVERAGE OUT on every downfall of the stock. The conviction that it may go up, force us to go out and average whereas in reality, you may not be ready to accept the truth because of your ego. I know this HARD TRUTH but is still difficult for me to implement it for myself. IF you really think there is no chance of stock going up, don’t average out. Just sell it even though its a loss. You can always claim this loss during filing of tax.
BY LEARNING HOW TO AVOID LOSING MONEY IN STOCK MARKET, YOU WILL LEARN HOW TO MAKE MONEY IN STOCK MARKET.
Please let me know if you guys know of anything that can add value to this post and help all our readers.