8 common pitfalls in Investing

The world of investing is an exciting as well as a dangerous realm to be in.With the ongoing uncertainty in the financial markets, investors are finding it hard to stay cool-headed.The fact is, most investors are finding it hard, as to where their money should be in right now. A better approach should not be where you should be investing but what you should avoid when investing.This may be called as a defensive approach towards investing. Lets go through some of these common pitfalls.

• Lack of Knowledge Having knowledge on what you are doing serves to help you along the way.It prepares you on your investing journey.For example, if you are currently investing in stocks ad shares, then you should know how to read financial statements. This will be essential as it helps to find the true value of a company that you are investing in.As Warren Buffett once said - "Risk comes from not knowing what you are doing".


• Timing the market Many a time, investors almost always try to time when they should invest.This notion can backfire on them when they get it all wrong. There is no one in this world who can have a perfect accuracy on predicting what investments are turning out to be.What you can only do is to appreciate the ebbs and flows of market dynamics such that you have a regular investment plan for yourself.In other words, you should be identifying good investments and buying them at a price which reflects its true value.A dollar-cost-averaging approach works for a smart investor who wants more returns over the long run.


• Buying on tips Getting a tip or two from a colleague or someone whom you really trust are quite normal.What is less healthy is when investors take the advise wholly.Picture this scenario, if your tip is good, you make some money.If your tip is a bad one then it'll do the opposite.This is dangerous.The worst thing that can happen to investors is when they lose psychologically.He or she will be deterred from investing.So do your homework.Even if you got a great tip from someone, proceed with due diligence.


• No exit plan It does not matter when you buy an investment.What matters is when you sell it.Therefore knowing when to get out when your investments turn the wrong way, can be the best thing any investor can equip his or herself with.So have a plan.Know how much loss you can stomach and what is your target profit from any investment you have.


• Holding on to losses Most of us fall into this category.We are too quick to take our profits and we hold our losses indefinitely.Shouldn't we be doing the exact opposite?However for an investor who holds for the long term, losses will always be there.What makes the difference between an inevitable loss and an investment that is only experiencing a minor correction, is knowledge. So if your investment horizon is less than 5 years, a 50% loss needs a 100% gain to breakeven.


• Risk management Know how much risk you are taking and whether it mirrors your personality.Different people have different appetite for risk.Hence know whether your investments are participating in any form of financial leveraging.Be informed on how much risk you are taking for the amount of return you desire.


• Desire for sophistication Some investors are always looking for a holy grail method for them to make money consistently.They search for that secret formula to make them profitable every time.The best investors are those who apply simple logic and sense.They never buy the 'high' and never 'sell' the low.


• Having an opinion Having an opinion on the market outlook is better than having none.It doesn't matter if you get it wrong.Because if you do get it wrong, at least you know you need to rebalance your investment portfolio.Investors fail because they follow others and not having an opinion of their own.

That's all folks!