Are you someone who finally decided to start investing your hard earned money? Maybe you watched all my videos on how to get started and you took the plunge. I congratulate you if that’s your story. Today, I’m going to help you avoid a major pitfall that most investors fall victim to. So, watch this video till the end and you’ll be a step ahead of your competition. If you gain value from this, please show your support by giving me a thumbs up and subscribing to my channel. Let’s start our adventure.

While it’s good to find resources to help you decide what to invest in, it can cause too much anxiety for the inexperienced investor. That anxiety can lead to poor choices. One of those poor choices looks like this: You watch a show on investing where they make a big deal out of a particular stock that has skyrocketed in value in the last 6 months. They hype it up like it’s the best thing to buy right now. So, being the smart advice follower that you are, you purchase as many shares as you can while the stock is valued at $300. Shortly after you purchase, the shares tumble down to $250. You panic and sell all the shares you recently purchased at a loss of $50 per share. Then, a month later, the stock is up to $350. At the end of the day, you lost 1/6 of your investment and have no gain to show for it.

This is the mistake that so many people make. They buy high and sell low. In plain English, that means they bought the stock when it was more expensive than normal, and then they sold it when the price dropped to a lower level. This is the exact opposite of what you want as an investor. The sole reason you invest is so you can put money into something and then later take out more than you put in. Did that happen in this scenario? Nope. Still, too many people fall for it because they invested based on emotions and not on logic.

So, how do you invest based on logic? Let’s use that same example from earlier. Only this time, you hear about the stock and you start watching it to see if it tanks. It’s valued at $300 when you start watching it. Later, it drops to $250. You realize that stock is being sold at a bargain, so you buy it up at $250. Later, it increases to $350 and you decide to sell all of it. Now, you’ve earned $100 per share, which is a great return on your investment. Obviously, I just laid out a perfectly timed scenario, which isn’t likely. Most people who took this route would probably purchase some at $280, some more at $270, and so on. And then they would probably sell some at $320, some more at $330, etc. It’s impossible to know how to time it perfectly, but selling an investment at a higher dollar value than what you purchased it for is the goal anyway. So, if that’s accomplished, you win.

The reason this is the logical mindset instead of emotional is because emotional investors panic buy and sell, which usually never works out in the end. Logical investors know that if a price of a stock drops, it goes on sell, so you can buy more shares than normal. See my video on DCA for more detail here. There’s a really good chance the stock price will rise again, but you bought it on sale, so you get to take in more profit if it goes up. Could the price continue to drop after you purchase it? Of course. You aren’t going to win every single investment you purchase, but you can play the odds and put them in your favor.

Here is the challenge, even after you hear this information and believe that it’s valid: emotions are powerful. You must resist the urge to sell if the stock price drops suddenly. There is a very good chance the stock price will rise again. Logic keeps you in the stock. Emotions sell in a panic. Investing is a long term game, and this is a better way to play the game. I will say again that nobody knows what will happen tomorrow. You’ll win some and lose some if you buy stocks. This guidance should help you win more than you lose. There are no guarantees, but this is good advice that the best investors follow. You should too.

one banknote
one banknote

Don't make this common investment mistake

"Fool of a Took! Next time just save us all the trouble and throw all your money in there!" - Gandalf