The secret to becoming a successful investor is to avoid simple mistakes. The first thing to remember is that most investors never make it big in the stock market. If you are lucky, you won’t lose too much, but realistically, the best you can do is stay even.
I study all the research papers, case studies and blog posts I can find and in my opinion, there are three major mistakes the average investor will find expensive in the long run.
1. Buying Only The Companies They Know
It’s natural for investors to be drawn towards companies that they are already familiar with. However, there are more than 6,000 stocks available for purchase on the U.S. market. By, focusing only on big names, you risk missing out on a hidden gem.
Such tunnel vision limits your pool of investment opportunities from thousands of stock options to just a few dozen, or less. This approach is destined to hurt your profits in the long run. It is a proven fact that many of the highest returns are earned on companies most people don’t even know exist.
I always ask myself if the stocks I currently hold in my portfolio are the best choice for my money or am I just holding on to them because I’ve seen the company’s name in the paper or in ads so often? Am I giving them unfair preference?
It’s easy to follow the crowd and jump right in with the big boys everybody knows. But, in many cases it’s the unknown or less-exciting companies that turn out to have stocks fly through the roof. Try to keep an open mind when considering which stocks to buy.
2. Buying Buzzworthy Companies You Like
Just like buying familiar stocks, many investors opt for stocks in companies they like or can brag about. These buzzworthy companies might be tempting, but they are not always a wise choice.
For example, just because you like a certain product doesn’t mean the company is necessarily a good investment. There are many more things to consider. It’s true that great products does usually mean the company stands to prosper, but not always. Do your homework. Choose an investment strategy based on research and not the latest fad.
3. Not Owning Enough Stocks
Research suggests it’s wise to own stocks in about 10–30 different companies. However, some investors buy just a few, seriously concentrating their risk. It’s like putting all their eggs in one basket. Even the hottest investors only pick winners about fifty to seventy percent of the time, so spreading out your investment dollars over more stocks greatly improves your odds of hitting a winner.
A final word from Maxim Bederov
Every investor makes mistakes. Remain open to new ideas and investment opportunities and always keep learning how to improve your investment strategy.
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