Investing is by far and away the number one vehicle for growing your wealth
since most people never earn high six-figure salaries or the recipient of
a large windfall of money they need to leverage the power of the stock market
to help grow their wealth it can be in the way of investing in retirement
accounts or simply buying and holding undervalued stocks either way investing
has its place in your financial growth equation
sadly many investors ranging from beginners to those with much more
experience make critical errors that stunt their investment potential and in
this video i will share with you seven investing mistakes you must avoid and if
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life-changing content mistake number one buying chairs in a
business or sector you do not understand too often investors gravitate towards
the latest hot or fancy sounding industry they may know very little or
even nothing about technology or biotech or the specific business the underlying
company operates in of course that does not stop them from buying a stock they
perceive to be their ticket to financial freedom in fact when making these
purchasing decisions without understanding the business that the
stock is attached to they forfeit the advantages they would have over other
investors if they had just been willing to make the time necessary to gain more
education you see when you understand a business you have a naturally built-in
advantage over most other investors for example if you run a restaurant you'll
be more in tune with businesses involved with restaurant franchising you'll also
see first hand and before they become public knowledge the habits of the
patrons by extension you will know if the industry is booming getting slower
or cooling down well before the vast majority of investors to take our
scenario a step further by seeing the trends in the industry in which you are
engaged you should be able to spot some opportunities to make a great investment
decision firsthand knowledge is often tied to making investing profits when
you invest in a company that is outside your circle of competence you may not
understand the subtleties and the complexity of the business in question
this is not to say that you need to be a pilot to invest in an airline business
or a medical doctor to invest in health care but that certainly wouldn't hurt
anytime you could have an unfair advantage over most investors you should
press that advantage as far as you can if you are a lawyer you may do better
with knowing when to invest in businesses which make their revenues
through litigation if you are a surgeon you'll have a better understanding of
how well or poorly a surgery robot is performing in their task and as such may
have an inside track on how well the underlying stock may perform
mistake number two having too high of expectations when the average investor
decides to throw money at stocks they often expect to yield great returns from
their investment and this is especially true when dealing with penny stocks most
people treat low priced stocks like lottery tickets and anticipate that they
can turn their 500 or 2 000 into a small fortune of course this can
sometimes be true but it is not an appropriate mindset to have when you're
getting into investing you need to be realistic about what you are going to
expect from the performance of the shares even if such numbers are much
more boring and mundane than the pie in the sky levels for which you may hope
when identifying a stock you want to invest in look at the performance of the
stock up until this point and watch all the other investments that are
competitors in the same industry historically has the underlying
investment gained five or ten percent per year or have those moves been closer
to hundreds of percentage points do most companies in the industry see their
shares moving one percent at a time or is it common for them to jump by tens of
percentage points instead based on the previous performance while
not indicative of what may come you could get an idea of the volatility and
trading activity of the underlying shares typically a stock will continue
to act mainly as it has in the past and usually that will be in line with the
overall industry you should also keep in mind what the alternative is when
investing your money in stocks in general having your money sit in a
checking or savings account means getting next to nothing back as a return
which compared to a five percent stock return makes your investing efforts seem
much more fruitful even if they aren't making you a fortune as much as you
would have liked mistake number three investing money you can't afford to lose
the second that most people learn how powerful investing can be for growing
your wealth they collect their cash and buy some stocks sadly they are usually
investing money that they need to cover routine expenses or supplement their
emergency fund and this is an unadvisable strategy to employ you will
be blown away if you can see how different your trading style becomes
when you're using money which you cannot afford to lose your emotions get
heightened your stress level goes through the roof and you make buy and
sell decisions which you otherwise would have never made an old japanese proverb
says that you will eventually lose every dollar with which you gamble you should
never put yourself into high pressure situations where you are putting money
on the line which you need for other reasons one strategy to get familiar
with investing before risking any money whatsoever is by investing only paper
money this doesn't mean investing your hundred dollar bills instead of your
pennies it means identifying stocks you want to buy and writing them down not
actually purchasing them for the time being this way you can track your
investment decisions and get a better understanding of your investment prowess
before using real cash deferring your actions will also give you more time to
save money that you can invest with you see when you invest with money that you
can afford to risk you will make much more relaxed trading decisions generally
you will have much more success with your trades which will not be driven by
negative emotions or fear mistake number four lacking patience we may have
touched on the different emotions you can have when you're investing but one
of the most costly ones is impatience remember that stocks are shares in a
particular business businesses operate much more slowly than most of us would
typically like to see or even than most of us would expect when a management
comes up with a new strategy it may take months if not several years for that new
approach to start playing out too often investors will buy shares of the stock
and then immediately expect the shares to act in their best interest this
completely ignores the much more realistic timeline under which companies
operate in general stocks will take much longer to make the moves that you are
hoping for or anticipating when people first get involved with shares of the
company they must not let impatience get the best of them or their wallet
mistake number five relying on bad advice
this is an extremely important point there is no shortage of so-called
experts who are willing to tell you their opinions while packaging and
presenting them as if they are educated and endlessly correct knowledge one of
the most significant parts to investing well is to identify and isolate sources
of guidance which consistently help you achieve profits for every good piece of
information which may be of benefit you will probably see hundreds of pieces of
really horrible guidance always remember that just because someone is being
featured or interviewed by top media does not mean they know what they are
talking about and indeed even if they do have a stellar grasp on their topic that
still does not mean they will be right thus your job as an investor is to
assess which sources of information should be trusted and have demonstrated
a reliable and ongoing trend of wisdom once you have identified those
individuals or services which may lead to profits you should still only
partially rely upon their thoughts combine those with your own due
diligence and opinions to construct your trading decisions and if you hear about
a stock for free especially a penny stock it is almost certainly being
driven by players with significant hidden motivations this may not be true
if you hear about a professional's opinion on something such as cnbc but it
is absolutely and uncategorically true when you hear about the latest hot penny
stock that is going to go through the roof by greedy stock promoters there is
an endless line of dishonest stock promoters out there their obsession is
to find ways to profit from your actions you lose so that they can gain what you
need to understand is that investing in speculative shares is a zero-sum game
meaning that for someone to make a dollar someone else has to lose a dollar
this is why scam artists and promoters take such efforts to drive up worthless
shares the more money they get to push the stock prices higher the greater the
profit they'll make when they walk away and leave everyone else in the dust and
broke mistake number six investing with the masses
in many cases the majority of people only hear about an investment when it is
already performed well if certain types of stocks double or triple in price the
mainstream media tends to cover that move and tell everyone about how hot the
shares have been unfortunately by the time that the media
gets involved with a story about a new share rising in value its price has
already reached its peak the investment is overvalued by this point and by
trying to get in on the bandwagon at this point will only mean that you will
lose money as the stock price begins to fall back down to earth we have seen
this trend play out recently with the recreational marijuana stocks some of
these tiny companies had only two or three employees but that didn't stop
them from being valued at a corporate worth of about half a billion dollars
in other instances an old nearly defunct gold mine would add cannabis or
marijuana to the name of their company and the shares would instantly double or
triple in price at no point were investors looking into the company deep
enough to realize all the problems tens of millions of dollars in debt no
revenues millions in ongoing losses each month don't be someone who invests with
the rest of the population as their sources of information may be too late
when it comes to making a wise investing decision
mistake number seven succumbing to the sunk cost fallacy simply define the sunk
cost fallacy is where individuals continue a behavior as a result of
previously invested resources and in more technical investing terms this is
referred to as averaging down averaging down stems from someone making an
investing mistake and trying to rectify the situation by throwing more money at
it for example if they bought the stock at 350 and it drops to 1.75 they can
make that mistake look a little bit less awful by purchasing a whole bunch more
shares at this new lower price the result is that they've now bought stock
at 350 and more at 175 so their average price per share is much lower this makes
their loss in the stock appear far smaller however what is really happening
is that the individual bought a stock which dropped in value and now they are
sinking even more money into this losing trade this is why some analysts suggest
that averaging down is just throwing good money after bad in the event you
feel the need to average down remember warren buffett's sage advice the most
important thing to do if you find yourself in a hole is to stop digging
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