While everyone understands the importance of equity investment, few are able to ace it. It’s not uncommon to hear investors lamenting about losses from this asset class, only to shun it completely.
If analysed closely, the negative returns from equities have more to do with investment mistakes, rather than volatility, the bugbear of equity investment.
Here are some common equity investment mistakes which you must avoid to maximise your gains, enhance your riches and pave the road towards financial freedom. Let’s begin.
Timing the market
Buy low and sell high – is probably the easiest way to make money in the stock market. However, it’s almost impossible to say when the markets will hit the rock bottom and a peak record high.
Though there are indicators that analyses where the markets are heading, predictions regarding the precise time of market lows and highs are not possible.
Timing the market is thus, a futile exercise. Most investors, investing in stocks, feel they can do so and wait for the right time to enter and exit from the market.
However, they end up doing just the opposite, i.e., entering high and exiting low, while suffering losses in the process.
Simply put, the decision to invest based on timing the market is similar to starting a journey until all traffic lights along the way are green. Instead, it’s crucial to invest time in the market, rather than timing it.
Following the herd mentality
This is another fundamental equity investment mistake that can dampen your returns. Investors are often caught in a herd mentality where they end up buying a stock, which everyone is chasing. Investment decisions based on this mentality has more to do with the behaviour of peers.
However, what’s essential is to be rational and invest in a stock after carefully analysing its fundamentals. It’s crucial to see long-term returns of a stock and compare it vis-à-vis its peers and benchmark indices.
More importantly, your investment must align with your financial goal(s). You can seek help from a professional to overcome this mentality, if required.
Equities will test your patience to the hilt. To be successful, you need to be persistent with your investment and not act under an impulse. There are chances that you might have picked up a sound stock, but it has failed to perform as expected.
Out of frustration, you end up selling it only to note it appreciates once sold. There are numerous instances where financial investment in an equity stock has yielded the desired result after the investor sells it. Patience, self-belief, and conviction are needed to reap rewards in equity investment.
Acting on free advice
Today, there’s no dearth of free advice available regarding the equity investment. There are plenty of materials available online and offline, which claims to offer inputs with a Midas touch. While there’s nothing wrong in reading them, acting upon them calls for caution.
Financial planning and investment don’t follow a one-size-fits-all approach. Needs vary across individuals and more importantly, it’s crucial to judge an idea based on logic and numbers, rather than accepting it blindly.
A piece of advice may have worked in the past based on popular sentiments, but it’s not necessary for it to click every time. Even the ideas of the most famous investment sages have gone wrong at different points and therefore, it’s crucial to do your research before taking a call.
And, the final word
Investing in equities is rewarding if, you can keep these mistakes at bay. It’s also prudent to seek help from certified professionals, who can guide you with your investment.
If you are a retail investor, venturing into this asset class for the first time, you can adopt the systematic investment planning (SIP) route in an equity mutual fund.
Professionally managed, SIPs in mutual funds help you diversify your investments and spread risk over a period, thus bringing down chances of incurring losses.