Chatting to novice investors on a regular basis I have found that these seem to be two of the most common investment mistakes
Investment Mistake #1 – Investors bet the bank when they shouldn’t!
Small cap Shares and tech stocks can go up or down very, very quickly. Sometime they’re just not as liquid as blue-chips or are extremely volatile. What concerns me is investors can put R30,000 – R100,000 into a single small cap share in one go!!
That’s a big mistake.
Just consider a real penny share stock with a price below R1. If it’s a matter of cents it can easily fluctuate share can easily fluctuate by 4 cents or more. Let’s say a stock is 21c and the share moves down a mere 4c, it would mean you’re down 19%.
Now imagine 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 profitable 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 over the last year, 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 profits 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!
With just these two principles in place, you can maximize your earnings by letting your profits 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!
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