Investment Mistake #1 – Investors bet the bank when they shouldn’t!
Penny Shares can go up or down very, very quickly. They’re just not as liquid as blue-chips. Yet lately I’ve seen many investors put R50,000 – R100,000 into a single penny share in one go!!
That’s a big mistake.
Take Mor vest, one of this month’s tips. The share can easily fluctuate between 17c and 21c. If you bought at 21c and the share moves down a mere 4c, it would mean you’re down 19%.
That wouldn’t say anything about Mor vest as a share – in fact, if it were to drop to 17c I’d rate it an even better buy. But if you bought R50,000 worth of it, you’d be down R10,000 and might be tempted to sell!
But by investing say, R15,000 in it, you’d only be down R2,850. That makes a massive difference psychologically.
So don’t bet more than you’re comfortable losing on a single share – or you will scare yourself out of what could be a prof itable position. And never bet everything you’ve got on a single tip.
Now let’s say you’ve got a large portfolio and you actually have R50,000 to R100,000 to invest into a single company. In this case I’d say you shouldn’t buy all at once. Buy in tranches of say R15,000 or R20,000 at a time.
That way you’ll get a better average price, and you’ll be in less trouble if the market moves against you!
Investment Mistake #2 – Investors think “this time’s different” and change their strategies!
The world changes every day, but if there’s one thing that’s sure it’s that what REALLY drives the market stays the same.
In the long run, share returns are driven by earnings. There might be short periods of irrationality, but in the end, when companies keep growing and increasing profits, their share prices will increase as well.
When markets get uncertain, like we’ve had in the past few months, many investors start doubting what really works. That’s a mistake – you need to stick to your guns!
If a share you’re holding is growing its business, making more prof its and even paying you a dividend it’s just a matter of time before the market starts ‘appreciating’ it.
Just be patient and stick to your plan and you will be rewarded!
Take Foneworx, for example…
Back in 2012, holding the share was scary at times. It dropped from around 130c all the way down to 94c in just two days.
That’s a 27% fall.
Had you bet everything you had on it you might have lost faith in the share.
But looking at the business I knew it had tonnes of cash on hand and it was growing its business. In short – it still got the thumbs up sign from my PowA! strategy.
So I held on.
And it paid off. We were rewarded handsomely as the share shot up to 160c where we took our gains off the table!
With just these two principles in place, you can maximize your earnings by letting your prof its run, and minimise the risk you take on by not overexposing yourself to any one investment.
Because, no matter how uncertain things seem, there are still plenty of opportunities to profit out there – you just need to stick to your plan!