Topic: How To Invest

3 common mistakes to avoid when investing money in the stock market

Here are three easy-to-avoid errors that most investors make when investing money in the stock market. All three can seriously hinder your portfolio’s long-term results.

1. Taking an overly optimistic view of speculative investments: Some investors generally put too high a value on speculative ventures. They want to believe that innovations will succeed, and that they’ll get a fair chance to profit from investing money in these companies. Their innate politeness stops them from asking tough questions of smooth-talking promoters. Excess optimism plus a shortage of information leads them to pay too much.

That’s why we focus on well-established companies rather than start-ups, even in Stock Pickers Digest, our advisory for investing money in aggressive stocks. Most of our Stock Pickers Digest buys are far better established than your average penny stock.

2. Selling good investments out of boredom: Stock prices tend to move in short spurts, interrupted by lengthy periods when they mainly move sideways. If you focus on price and fail to stay informed about the fundamentals of the stocks you are investing money in, there is a risk that you will begin to make changes just to see some action.

Selling stocks just because you are bored with them is not the kind of mistake that brings immediate losses. But it is sure to cut deeply into your long-term returns. That’s because the market’s top performers over a period of years, if not decades, can bore you to tears for months at a time. They may go sideways for months or years before setting off on a big rise.

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If you can’t resist the temptation of selling due to boredom, our advice is to set up a separate account with money you can afford to lose. That’s the place for dabbling in penny stocks, options, short-term trading or whatever. Focus your recreational-investing urges on this account, so that boredom has no impact on decisions you make for the “serious money” that should make up the bulk of your investments.

3. Consistently bidding below a stock’s market price: Some investors routinely refuse to pay the market price when they are investing money in a stock. These investors always put a bid in below the offer price, in hopes of buying at a slightly better price. The problem here is that some of your investments are going to go up as soon as you buy, and keep going up. Others will go down.

If you always put in a bid below the current market price when you buy, you’ll filter out all your best ideas. You’ll save a few cents from time to time, when a good stock comes down to meet your bid before moving up. But you’ll always miss out on your best investment choices — the stocks that were all set to soar just when you decided to buy.

Worst of all, you’ll still end up investing money in all your bad choices, since they will always come down to meet your bid.

You can get our latest stock trading tips, plus buy/sell/hold advice on stocks you may be considering buying (or selling), in our Successful Investor newsletter. Click here to learn how you can get one month free when you subscribe today.


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