5 Biggest Investing Mistakes

Investing in stocks is like doing sports. The one who wins is the one who makes the least mistakes. If you make less mistakes than others, you win. In the other words you earn money. Now, I'll try to show you the most important things to avoid when investing in stocks, but these advices are also useful in other types of investments.

Imagine that you have free 10.000 USD reserved for investing in stocks. All investing guru like Warren Buffet or Robert Kiyosaki admit that the biggest loss on whole capilal you can "afford" is 3%. Reffering this to our money it's 300 USD in one transaction. Let's take a look at example.

For ex. we buy Apple shares for 376.99$/share because we belive that they are going to raise. We can buy approx. 26 shares. For this example I ignore courtage we must pay to our broker. After easy mathematic operation we know that the maximum loss we can let is 11,54$/share, which oblige us to set stop loss order at price - 365,45$.

Using this rule we can avoid huge loss in our struggle againt the market. Never hold onto losers, hoping they’ll bounce back. Of course everybody can set their own percentage loss on whole capital (for ex. 2%) if you are more defense-oriented trader.

Being active stock trader you must be aware of trading costs. Take a look how much really you earned last year and what were your expenses like courtages, professional stock quotation and others. It may be a sad suprise for you, but you might say:

"0.2% courtage from order it's not much, I don't care!"

Okay, but it's better to look at expenses as a real money, not only value in %. In example above, our courtage would came to 40USD (buy&sell) and now think what if you make more transactions through the year on capital of 10,000USD. You can multiply on your own.

Don't expect 40% and above year profit. Of course it is possible for small investments and on a bull market. Fund managers pray to elaborate 20% gain at the end of a year.

Another advice - you don't need to check quotations of your shares every 5 minutes. You will definately go crazy. Remember that stock exchange isn't just a casino, although it may seem that it is :).

Often weekly or monthy price fluctuations doesn't matter. You should try to be long-distance runner, having long-term perspective, unless you are a daytrader. When you analyse company, you better try annual stock chart rather than weekly.

Inexperienced investors often seek trading advice on various forums, discussion groups and other webpages. Don't search for a guru who will correctly forsee all changes on the market. He doesn't exist. In learning about investing your own work is the most important. Nobody will help you without having interest in it.

Last but not least. Never buy shares of only one company. Variety of your portfolio lets you to minimalize possible loss. Of course it also reduces your profit. Always try to place some part of your capital in safe financial instruments like annuity or bonds.

In the end, if you liked this hub you should check also http://damek.hubpages.com/hub/7-things-you-need-to-follow-to-become-rich