These are a few common mistakes made by inexperienced investors in the stock market:
Investing in Popular Market Assets: In the early 17th century, the Netherlands experienced a tulip craze. Bulbs of rare varieties were in high demand, and their prices soared. The tulip market boom captivated everyone: florists, businessmen, officials, small shopkeepers, and even servants. Everyone bought bulbs for resale. In 1636, the price of a single tulip reached the cost of an entire house. However, when supply exceeded demand, tulip prices plummeted, causing many speculators to go bankrupt. This situation, where a surge in demand for an asset for resale causes a rapid price increase, is called a bubble. And as we know, any bubble eventually bursts. Despite this historical lesson, speculative bubbles have continued to inflate and burst repeatedly in various countries.
Selling Stocks After Bad News: When stock prices fall, many investors experience panic. They fear it might be the beginning of a market downturn leading to significant losses, which tempts them to sell stocks to minimize losses. Novice investors often sell their stocks after a minor price drop, only to find that the market recovers the next day. Professional traders and fraudsters take advantage of this, profiting from the situation. Some even manipulate the market by deliberately spreading bad or good news.
Treating Stock Trading Like Gambling: Sometimes, stocks are seen as an easy way to make money. It seems straightforward: buy stocks, wait for the market to rise, then sell at a profit. After a successful attempt, some investors, seeking higher profits, take out loans secured by assets like their apartment. But when the market falls, these investors are left without money and without their apartment. Trading stocks for quick gains is not investing; it's speculating. Stock speculation is akin to gambling in a casino. You might win by chance, but the more you play, the sooner you'll lose.
Wanting Everything at Once: Many people, after reading popular investment books, imagine themselves as the next Warren Buffett. They pick the best stock and immediately invest a significant amount. They are then surprised when the stock underperforms or incurs losses. This happens because they forget key investment principles—diversification and gradual market entry. Worse than losing money is developing a strong aversion to any further investments in the stock market.
Chasing Past Success: If you learn that your neighbor made a 15% annual return last year by investing in a mutual fund, don't rush to follow their strategy. Yes, your neighbor was fortunate, but the market constantly changes and could easily fall the following year. If you hastily invest in the same mutual fund, you might end up with losses. Firstly, past market growth does not guarantee future performance. Secondly, do not blindly copy someone else's strategy. You don’t know how much time and effort your neighbor put into successfully navigating the market.
