Hello friends, today in this blog we are going to look at 5 Investing Mistakes In 2020 that a lot of people make when investing in the stock market.
On May the second, Warren Buffett’s conglomerate Berkshire Hathaway reported a net loss of 50 billion dollars after a pandemic swiped the world, which tells us that even the greatest minds in the world of finance aren’t insured against unexpected events.
Even though the company managed to report a profitable quarter recently, its stock price hasn’t even regained itself back to pre-pandemic levels. Buffett lost his position as the third richest man in the world.
Even people like Elon Musk, who seemed quite far away from Buffett’s level, have exceeded him. No matter how smart, talented, and hard-working you are, the market is unpredictable! And if you are not careful, you might end up losing everything while thinking that you stumbled on a golden opportunity that will make you a millionaire.
While there are endless kinds of mistakes investors usually make, especially beginners, there are five mistakes that most immature investors make and even sometimes experience investors and end up losing fortunes.
If you don’t want to be one of them! If you want your investment to keep growing! If you want to build a fortune in the stock market! Then you have to avoid these five fundamental investing mistakes!
Do Not Make These 5 Investing Mistakes In 2020
- Confusing Investing in trading.
- Investing Emotionally.
- Waiting too long to start Investing.
- Not being able to look outside the stock market.
- Investing what you can’t afford.
1 Confusing Investing with trading.
Confusing Investing with trading Beginners who just start investing imagine that you have to find new cool stocks to invest in every day or every week. And if you have spent the entire month not investing in a single company, then you are not an investor. In the world of the stock market, there are investors, and there are traders.
A trader is someone who buys a stock with intentions to sell on the same day or in the next few days because the goal isn’t to invest but rather buy the stock and profit from the volatility of the market. Have you ever seen how fast stock prices move? They jump up and down every single minute, if not second. The price opens at a hundred dollars and closes at 105 dollars.
So if you trade with a hundred thousand dollars, you can expect to make a 5000 dollar profit within a day. In theory, it seems like an easy way to make money, but it’s much more difficult in practice. Stock prices are almost impossible to predict in the short run.
And as a trader, it doesn’t matter what stocks you are buying, even if these companies are complete trash because you are not looking to keep your money there. And that’s what makes it so different from investing. Investing means buying tiny pieces of business that produce something meaningful and grow over time, so does the value of your investment.
So if there is one company you know that is doing great, you know where is it going to be 5 or 10 years from now, you might keep investing in that company instead of reading unless financial reports and waste your time analyzing unlimited financial statements.
2 Investing Emotionally.
Whenever a certain asset is rising dramatically, you have tons of people suddenly get interested in investing, although they didn’t give adamn about it before. Remember what happened with bitcoin just a few years ago. The price rose so dramatically that people who had no idea what cryptocurrencies are, who didn’t understand how blockchain works, or the technology behind it suddenly started buying bitcoins hoping that they are going to make a fortune.
I am not saying anything negative about bitcoin, blockchain, or cryptocurrencies, but investing base on your emotions is a bad idea. Usually, it turns out to be disastrous. Bitcoin is just one example: remember the mortgage crises. Even the most qualified investors could not resist and jump in. However, the entire thing collapsed, and some countries are still suffering the consequences of that crisis.
In the late 1990s, even a Giant tech company such as Yahoo made a horrible decision investing a few billion dollars in broadcast.com, which two years later, they had to shut it down, but mark Cuban was smart enough to sell his entire stake before everything collapsed.
Here is a rule of thumb. If it’s already in the news and rising dramatically, you missed the opportunity, accept it, and don’t feel bad about yourself. By the time you get in, that cycle might be at its peak. Any investment you make should be based on rational, calculated risk.
Yes, of course, you might end up missing some great opportunities but you will avoid the risk of losing all of your wealth and build sustainable portfolio overtime. Worlds greatest investor Warren Buffett missed the opportunity to invest in google, amazon, and a lot of other great companies.
There are two types of stocks worth buying. A stock of a company that has a promising future and its current stock price does actually represent its value today and not 5 or 10years from now. And secondly, a stock that’s for one reason or another undervalued. Everything else probably doesn’t worth your money.
3 Waiting too long to start Investing.
Waiting too long to start Investing is all about time. The earlier you invest, the more you are going to earn. One hundred dollars invested when you are20 will turn to 466 dollars by the time you get 40, while the same 100 dollars invested when you 30 will turn to just 215 dollars by the time you reach 40. That’s assuming if you invest it in an index fund with an annual rate of 8 percent.
I know that you might be thinking that let me wait until I figure everything out, but that time will never happen. There will always be something you don’t know. It might sound a bit controversial because just a moment ago, I warned not to invest if you don’t understand what you are doing.
That’s true, but you don’t have to be a financial genius to start. If you are not much into the stock market, invest with an index fund. Start with a fraction of your savings or monthly paycheck and then give yourself some time to learn.
And once you educate yourself, you can go ahead and invest in companies you believe are going to do better than the SP500 in general. I know that you might not have the time, but you don’t need to spend Horus and hours looking for companies every day.
You have to do it once to twice a month. And once you find a good investment, just keep investing there. My biggest position is in an ETF. I also invest in individual companies, but I am very careful with that because I don’t want to spend a ton of my time every day to track these stocks.
4 Not being able to look outside the stock market.
Not being able to look outside the stock market. Real estate and the stock market are the coolestinvestments, but there are not necessarily the best. My best investments that I have made were all in business that I started, The stock market is more to keep my money growing while I am busy growing my businesses. Because if I keep them in a savings account.
Inflation would eat them out. So I invest in stable companies that have some room for growth. Maximum what you can expect from the market is 7, 8, or at best 10 percent. Of course, it’s different every single year because there were times when sp500 was higher by 20 percent, but other times it was down by a negative percentage.
But when it comes to a small investment ina small business that seems to be working, returns can be a few hundred percent of not thousands. You have the ability and the power to influence it, while when it comes to these multi-billion dollar corporations, you can’t do anything. So don’t be blinded by the stock market. The best investment specifically for you might be under your nose.
5 Investing what you can’t afford.
Investing what you can’t afford It’s easy to get excited about investing. I get it. You see all of these numbers. You want to jump in and nail it so that your bank account gets filled with those green papers, or to be more precious with those numbers. And that was the case with me well. But you have to consider other factors as well before you throw your money in.
If you need that money in the next few months or so to cover your basic expenses, then it doesn’t worth it to invest. Here is why. Since the market is unpredictable, even if it’s a huge and stable company, in the long run, it will probably grow, but in the short run, the stock price might fall, and if you suddenly need money to cover your basic expenses, you might end up selling your investments at a loss.
So, don’t get overexcited. Of course, start as early as possible, but be rational about the amount you want to invest. It’s better to start with something smaller but consistent, even if that means just a few hundred bucks a month. If you have just started investing or high interested.
Please take these mistakes into account. I don’t have any other interest other than helping you by sharing my experience with it. It is just so painful to lose the money you worked so hard to earn in a blink of an eye. I am not saying you will never lose anything because that’s a fundamental part of the game, but minimizing losses and mistakes is a crucial part of success in anything, including the stock market.