Things I Learned To Avoid When Investing In Stocks
I’ve been investing in the stock market for over a year now. I am by no means an expert. And, indeed, in that time I have made quite a few mistakes. Today, I would like to share them here so that others can learn from them without having to make the mistakes themselves.
Investing without an emergency fund.
When I first started buying stocks, I had a lot of cash in the bank. But they were to pay for my wedding and honeymoon. I naively thought that it counted as an emergency fund because it was money in the bank.
It didn’t help. I obsessed over each rise and dip, repeatedly doing computations to see if I should sell already or to find a price point where I would be comfortable selling.
In the end, I ended up selling too quickly to lock in a relatively modest 5% profit. Had I held on for a couple of months more I would have gotten a 50% profit instead.
Investing money I wasn’t willing to lose 100%
Investing without an emergency fund is bad enough, but I also wasn’t willing to lose what money I had. I had a just a few thousand; and since most of my money was tied up for a big expense coming up, there wasn’t more funds on the way. I was too protective of what little I had.
Coupled with my lack of an emergency fund, I was constantly worrying about each dip and hoping for a miraculous spike in price just so I could cash out and leave the stock market.
Buying (and selling) without doing research
I actually did this twice. First I jumped the gun and bought Ayala corp stocks without knowing whether the price was low or high. I can’t even remember anymore what I was thinking.
Fortunately, I didn’t lose money. The stock price went down after I bought, but I stubbornly held on. But as soon as I got a 5% return I cashed out. Ayala corp stocks went on to rise more than 50% since then. What’s even worse is that the steep rise started the day I sold. I was initially happy at the 5% profit. Then I saw the price rise even higher at the end of the trading day. And it kept rising several days after that.
Of course, I committed the same mistake again. I bought Petron Corp. stocks when it slid 15% after its retirement fund sold a massive amount of shares. I didn’t even check how markets typically react to that. I just took the profits from selling BPI and Ayala Corp stocks and bought PCOR shares. My entire plan consisted of buying it at “a discount” and selling it after it goes back up by 15%.
So how did that go? It just kept going down. Until the day I eventually sold it, it never even sniffed the price I bought it at.
Timing the market
Despite not even doing my research, I was constantly trying to time the market.
The first stock I ever bought was BPI. I watched the price for a bit, and then when I saw it go down, I bought 10 shares. I fully expected it to return to it’s “original” price in a few days or at most a few weeks.
But the price kept going down. And I kept buying 10 shares every time it did. But when it just stayed down, I began to obsess over my decision.
I was also trying to time the market when I bought Petron corp shares.
Investing without a goal and without a plan
In my first 6 months of trading, I was basically just trying to take advantage of the market – without bothering to learn much about it.
If I had a goal – say enough money to buy a new pair of shoes – I might have been happy and content with my modest profits. Instead, all I had was a nagging and grating feeling that I blew it. But actually, with everything I didn’t do correctly, I was practically blessed that I had not lost money, let alone get a 5% profit.
And if I had a plan, I would have made more money – without having to obsessively follow the stock market and compute several what-if scenarios every day.
In a little over a year, I’ve certainly learned a lot. I’m still no expert, and I certainly haven’t “struck gold” in the market yet. But hopefully this post will help a lot of other people avoid the mistakes I did.
If you liked this article, please subscribe to my feed, like me on Facebook, circle me on Google+, or follow me Twitter @thePFApprentice. It’s free, you won’t miss new articles, and you’ll also get my free ebook: the Super Savings Guide.
This article is part of a series for newbie stock investors/traders:
- How To Start Investing In The Philippine Stock Market
- Things I Learned To Avoid When Investing In Stocks
- 7 Things I Learned From the Stock Market
photo credit: roxj via photopin cc