ArjunGaur @ArjunGaur: "Top Three Investing Pitfalls If you..."

United Kingdom

Top Three Investing Pitfalls If you have been active in Financial Markets for a while, you would have personally come across these in your own experience. For any new investors, these might seem perfectly reasonable, but unfortunately you are likely to make these mistakes anyways. The only hope here is you would learn from it and not repeat them again : ) 1. Too Concentrated or Too Leveraged Yes, we all love announcing 'All in' on the weekend Poker Table. But take it easy folks. We are talking real money here and leverage goes both ways. The old saying on Wall Street goes that the only free lunch is diversification. So instead of going with your hijack that tells you that you are able to see the future of one business, use the smaller transaction sizing and spread your bets around. So rather than betting big on $EMN (Eastman Chemical Co) how about splitting it out to $EMN $KNX (Knight-Swift Transportation Holdings Inc.) $AAL (American Airlines Group Inc) $WBS (Webster Financial Corporation) and $RHI (Robert Half Inc) This is the biggest mistake that investors make, even more than letting the losses run. If you start off with too concentrated and too leveraged a position, it'll be a lot of emotional and financial pressure to cut those mounting losses. Most investors start off looking for that perfect technical and fundamental analysis, not realising that none exists that can predict the future. On the other hand, very few look into Money Management and Position Sizing as being core to their survival and potential success. So why do I expect the investors to still make this mistake? Well, if you have entered the financial markets, you are probably thinking of all 'em riches you keep hearing about. Not to mention, you see some of the investors killing it with 10% returns month after month. Of course, there are always some lottery winners, that doesn't mean you go invest money in buying as many of 'em tickets. Instead of thinking how you are going to double your money, it's more worthwhile to think how much money you could potentially loose while allocating capital to that business. 2. Cutting Losses Too Soon or Too Late Instead of cutting loss after you have lost a certain percentage or certain amount, as is often advised, it is much more logical to cut the allocation after reaching a price threshold where it is reasonable to conclude that this was the wrong time for that particular investment. Other Market Participants do not know and definitely do not care whether you have lost a certain percentage or certain amount, so taking a loss based on that totally ignores the possibility of your investment actually being sound. If you are sized correctly with appropriate stop loss levels, your realised losses would coincide with expected drawdowns. 3. Too Much FOMO or Too Much Herd Mentality More the number of people speculating, less is the reliability of identifying a good investment. Conversely, less number of speculators, more likelihood of finding a good opportunity. For example, markets top out when last buyer has bought in and markets bottom out when last seller has sold out. So if all the speculators buy in together, there is no one left to buy, and thus clearing price reverses. Thus for best investments, look for areas few people are looking or speculating in. Be independent in thinking, see below ; ) i.pinimg.com/originals/59/bc/25/59bc2510418d2130cfcec4c2d110b9a0.jpg I welcome you all to look at my Portfolio and add it to your Watchlist >> I look forward to growing with all of you : )