How to Invest Prosperously

What Not to Do 

www.moneyglare.com

A large portion of one’s ability to invest properly comes down to the luck of the draw, however, it is very easy to essentially “screw up” a portfolio by making simple, avoidable mistakes. The article, “Five Minute Investing: Things to Avoid,” points out some of the common mistakes that often trap beginner investors. The following are a few things to avoid when investing to prevent self-destruction of one’s portfolio.

1. Not having an exit plan.
1. Obviously every stock will not be a winner. This is something that early investors must realize, so before purchasing a stock, every investor should have a plan on how they will cut their losses. This “exit plan” should be thought of before the stock is purchased in order to avoid any irrational decisions due to the emotion that comes with owning a stock.
2. Plunging too much money into a stock at once.
1. Another common mistake is plunging, which means that too much money is invested in one stock, all at one time. This is actually two mistakes combined into one big one. Once an investor has put so much money money into one stock, the investor’s thinking begins to get clouded. By having such a high stake in one stock, the pressure is very high for the investor. “Plunging leads to cutting your potential gains short and letting your losses keep mounting - exactly the opposite of what you should be trying to accomplish.”
3. Choosing stocks in a downward trend.
1. Although this strategy may seem like it could lead to extremely high profits, it is extremely difficult to accomplish. In order to yield a profit on these types of stocks, two things must go right. First, the investor must be able to predict which stocks will actually end their downward trend before going all the way to zero. Second, the timing of this must be impeccable, the investor must know exactly when it will turn around and buy the stock at the right price to yield a profit. The chances of being able to predict both of these is very slim, therefore, not a good investing decision.
4. Falling in love with a stock.
1. This has to do with the emotion that comes along with investing and nothing else. Even if a stock has done so well for you for so many years, most of the time, this will come to an end. Investors often believe that “bull markets” will go on forever. This could not be farther from the truth. As cited by the article, even Warren Buffett, who is a long-term investor, cashes out of his investments that have made him billions. Few people can predict stocks like Buffett and even he knows when it is a real, educated prediction, or just his emotions forcing him to believe that his investments will continue to rise.

Investing in the stock market often comes down to luck, but sometimes investors need to know the difference between what they want to do and what the right thing is to do. In order to find the right strategy to invest prosperously, there is still many more things to be found regarding things the avoid and things to target.