5 Mistakes to Avoid While Investing in Stocks

Due to availability of easy access to online trading, provided by many brokerage houses, investing and trading has been made easy. This is great, because it encourages more people to explore investing for themselves, rather than depending on mutual funds and portfolio management schemes (PMS). But the big question is, whether an investor would be able to do their own research, pick stocks, invest and make money?

Yes, it is possible to be a successful investor and for that one needs to be aware of the common mistakes while investing. By avoiding these mistakes, their path to successful investing would be a smoother one.

1. Investing all the money in a single investment

You should never put all your eggs in one basket. Investing 100% of your capital in a single stock or a sector is not a good move. Since, one particular stock or sector may under-perform the market, while the rest of the market moves up. One has to have a diversified portfolio of different sectors and stocks. Diversification is a key to good investment.

2. Chasing News

Buy on rumors and sell on news, is an old jargon. Investing on news is a terrible move. If you are lucky enough, you would get away with it or else you would be stuck with that particular stock. Rather than following news and rumors, investments should be made in companies you understand and which you believe are fundamentally sound and currently undervalued.

3. Buying on Tips and calls

This is another form of news and rumors.We have already seen why tips and calls won't make you money. Tips and calls are given for traders and not for investors. And these calls are given with specific price targets and stop-losses. Investors buy on these tips, forget about stop-losses and stuck with the stock, knowing what to do. Make your investment decisions on your own using fundamental analysis.

4. Low-priced or Penny stocks

The low price of the cheap or penny stocks does not necessarily mean they are safe. So, even if you may see such shares rising up pretty fast in the short-term, over the long-term they don't perform well. It is not wise for a small investor to buy these penny stocks, which involves risk of losing his capital. Using good fundamental research techniques to define whether to buy a stock or not, helps in making good investment decision.

5. Buying on leverage

Leverage is available in many forms - like margin trading, futures etc., and using such leverage magnifies both the gains and the losses on a given investment. Use of leverage involves risk of capital and learning to control the risk does not come easily for a small investor. Hence it is in the good interest of the investor, buying on leverage is best avoided.

Remember, investing is not that easy and it is always wise to invest with a long-term view, whether you do it buy investing directly in stocks or through top mutual funds.