Common Mistakes made by Stock Market Investors

Investing is EASY


Investing in stock market is simple and easy. "Buy at a less cost and sell at high cost". You will be in profit.
NO!
You won't be.

It's not that EASY!

And the BIGGEST mistake is "Thinking Investment in Stock Market is Easy"

It is Difficult, much harder than people think.

The problem is stocks have very high noise-to-signal ratio, and will go up sufficiently frequently to deceive the average investor into thinking investing is easy or successful investing can be achieved with some work.

It's similar to Poker. It is hard.  
It is like sitting down at a professional poker table knowing the basics, but that is simply not enough.  
You will win a few pots out of luck, which will keep you coming back, but the odds are severely stacked against you in the long term.  There are obviously skilled people who can make a lot of money investing in stocks (and it remains to be difficult to differentiate skill from luck), but those are the exceptions.  Don't allow yourself to underestimate the difficulty. 

Investing is unlikely going to be a profitable hobby or part time job, successful participants are professionals who have devoted their careers into honing their craft.  These pros and the media certainly won't tell you how hard it is.  They give you hope and want you to keep coming back.

Charlie Munger once said, "Anyone who finds [investing] easy is stupid." 

EMOTIONS



We're Natural. We're Emotional. We're Humans.

Another biggest mistake made by both new and old investors and the biggest reason new investors lose money and aren't successful is because of a human trait called Emotion.

Emotional trading leads to many issues such as - holding a stock "until it comes back" or trying to squeeze every penny out of a non-moving security

Unrealistic Expectations



People tend to get in trouble in investing when they have unrealistic expectations, especially when they have the expectation that higher returns can be earned without an increase of risk. That is a very dangerous expectation which is the thing which is most dangerous to omit? Thus is risk consciousness and the great accomplishment in investing is not making a lot of money, but is making a lot of money with less-than-commensurate risk. So you have to understand risk and be very conscious of it and control it and know it when you see it. Great investors are really characterized by exceptionally low levels of loss and infrequency of bad years.

Discipline


Stock market is like a nursery for kids. They can be stubborn at house and very disciplined at school.
At home, you will be listened but at school, you will not be tolerated by the similar stubborn's.

It’s very important not to be prejudiced and stubborn. You have to be open-minded but you also have to be very disciplined, and grounded, and firm too.

LOSING YOUR BALANCE


Maintaining the balance of lower- and higher-risk assets is important, so that the actual risk you're taking doesn't get out of balance with your tolerance to risk. Re-balancing brings a dual benefit: it reduces volatility and is likely to produce a better return.
A balanced portfolio of funds chosen 10 years ago would have generated more profit if it was  rebalanced to the original proportions each year when compared to a portfolio left untouched. Rebalancing controlled the volatility of the portfolio, too.


BUYING HIGH, SELLING LOW


Any wise investor knows the basic principle of investment: buy low, sell high. However, investors often ignore this rule, as they get swept up in prevailing market sentiment.

When markets have stormed ahead, sentiment is positive and people are more likely to invest as they don't want to miss out on further gains. Conversely, when markets have performed poorly, sentiment is negative and people are more likely to head for the exit due to fear of clocking up further losses.


Speculating Instead of Investing


An investor's age affects how much risk an he or she can take on. So, a young investor can seek out bigger returns by taking bigger risks. This is because if a young investor loses money, there is time to recover the losses through income generation. This may seem like an argument for a young investor to speculate, but it is not.

Instead of speculating and gambling, a young investor should look to invest in companies that have higher risk but greater upside potential over the long term. 

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