5Millions of people are drawn to the stock market because they have been bombarded with stories of people who went from rags to riches on Wall Street. With great risks, it’s possible to hit it big. However, when your money is constantly exposed to high risk, that day will inevitably arrive when it all comes tumbling down. It’s especially important to understand the risks when you’re dealing with a bull market. Here are five mistakes that every investor should avoid in these situations.
1. Experimenting with your money
There’s a distinct difference between trading and investing. Investors create wealth patiently over years, but traders are looking to get into a position, grab a quick profit, then get out of a position within hours or even seconds. Investors should not attempt trading without learning the tried-and-true techniques and gaining the necessary experience for this type of speculative endeavor.
2. Don’t blindly follow the crowd
When the market hits a sudden big upswing, the news travels
around like wildfire. You often hear stories about instant millionaires. However, these spikes are usually due to temporary hype and not because of any true gain in stock value.
In these situations, you have to realize that, once this news reaches you, the ship has already passed. This can be particularly dangerous because, after a big upswing, the market is almost certain to take a big downturn and wipe out your trading account as a result.
3. Don’t halt your SIP investments
During bull runs, there are usually high levels of volatility. Because of this, investors sometimes feel that they should take their Systematic Investment Plan (SIP) funds and put them into other investments. With SIPs, you buy more when the price is low and less when the prices are high. Regardless of temporary downswings, an SIP will only yield long-term gains if it stays in for the long haul.
4. You can’t predict the market
Inexperienced investors tend to believe that it’s all about predicting market movements. If this is possible, you can buy at the lowest point and sell at the highest point for huge profits. This looks great in theory, but in practice, it always leads to ruin.
The reason for this is that it’s impossible to predict the market on a consistent basis. Sure, you could follow some signals and get lucky for a while, but that one time when things don’t work out the way you expect, you lose everything.
Wise investing involves thorough research of company reports and technical analysis of price charts. Ignore the market sentiment, and pay more attention to concrete goals that are data-driven.
5. Improper asset allocation
When a particular stock starts performing tremendously well, it’s tempting to pull assets from other parts of your portfolio to leverage the star performer. This is a common mistake. You must maintain a diversified portfolio in order to avoid placing all your eggs in one basket. There are some assets, such as bank allocations, that you must have in order to maintain stability.
Don’t allow greed to get the best of you as it has for so many failed investors. The key to success is patience and discipline. Stick with your long-term strategy, and your investments will grow over time.