Top stock investing mistakes to avoid as a beginner

If you are a newbie in the world of investment, there are chances that you will make mistakes as you move ahead on the path of financial success. While some of the mistakes will prove to be a lesson, some can jeopardise your dream of stock market success.

Irrespective of stocks you choose to invest in, there are a few tips and tricks without which you can make a profitable investment. We have enumerated a list of mistakes to avoid as a beginner in stock market.

1. Investing without a plan:

Invest in Indusind bank, the stock is bound to rise. You went ahead with the investment without analysing indusind bank share price and trends and ended up in loss. Not having an investment plan is like travelling to an unknown land without a map. You will end up in loss. A good investment plan includes your own goals, finances, risk appetite, and benchmarks to measure your success. It will keep you focussed and enable you to make informed investment decisions.

2. Investing in Bulk:

Investing all your hard earned money in one go is yet another mistake that leads to failure in the stock market. It increases the risk of loss to a great extent. Also, it paralyses your financial portfolio. Start investing small, and gradually increase the amount of investment as you understand the working of the markets. This will again help you make profitable investment decisions.

3. Putting all eggs in one basket:

Another mistake that beginners make is putting 100% funds in a single type of asset. The best way to minimise stock market risk is to diversify money. If you are making one risky investment then it is important to balance it with a stable one. A good financial portfolio consists of equities, bonds, FDs, insurance etc.

4. Having no investment plan

Venturing into investing without having a plan is like starting a voyage without a compass. You will end up as a loser. Before you start investing, you must have a personal investment plan or policy that include your goals and objectives, the risks that are relevant to your chosen investment style, the benchmarks for measuring your success, and your plans to diversify your investment. Having a plan will keep you focused and disciplined, and will help you adhere to a healthy long-term policy even when market conditions are unfavourable.

5. Investing cash reserves

Yes, you have a burning zeal to bump into the investing world and start making huge fortunes later. That’s good, and that’s just the same motive every investor has. But most of the time, you will have this strong urge to pump all the money you have into your investment. Never give in to this urge, as it would make you regret bitterly in the long run.

Having an investment doesn’t mean you should have no liquid assets left. You should always set aside a good amount of cash for emergencies and opportunities that may never come again. Granted, saving your cash brings no returns, but investing everything is very risky as well.

How does the share market function?

While we all know what a stock market is and this where all the shares are traded, however, many are still unclear about how it works.

To begin with, a stock market is where all the financial instruments such as derivatives and stocks are traded. Be it the broker, the company that issues shares, investors or the traders, all of them need to first register with the stock exchange as well as Securities and Exchange Board of India.

The company who issues shares is listed through IPO, i.e. Initial Public Offering in the primary market such as ICICI bank share price, SBI share price, and share price of other banks and companies. All the details about the company as well as the number of shares to be issued are mentioned in the offer document. The stocks are then allotted to the investors as per the bid.

Once the stocks have been listed, they can then be traded in the secondary market. There are many brokerage firms as well as brokers who play the role of intermediaries between the investor and the stock exchange. When you place an order with the broker, he then forwards it to the exchange which in turn checks for a share sell order matching with the same share.

When a particular price is decided upon by the seller and the buyer, the order is confirmed by the exchange and hence communicated to the investor’s broker. The exchange also ensures that both the buyer and seller, do not default. After this is done, the ownership of the shares is then transferred which is called as settlement.

Once the order has been placed, there cannot be any cancellation. Therefore, it is very important to think, analyse, and decide in order to place any order in the stock market. The trade that has been confirmed has to take place as it is a question of sanctity on behalf of the stock exchange.