When I first started buying shares, I didn’t have a clue what I was doing. I made so many of the investing mistakes common to beginners it’s amazing I didn’t lose all my money. I have since learned a great deal, and managed to recover my losses, but I wonder much further ahead I could have been.
Here are three common investing mistakes I wish I’d known to avoid when I first started investing.
I tried to be a day trader
I thought day trading would be easy. How difficult could it be to buy the bottom and sell the top? All I needed to do was ‘keep an eye’ on the market. Boy, was I wrong. No one can predict which way a stock will go and trying to anticipate it only cost me money and sleep. I learned the hard way that the only way to make money was to invest for the long term.
I didn’t do research and I had no confidence
Wanting to make up for lost time, I threw my capital into whatever was in the news, thinking that I could ride the wave up.
What I should have done was to look at a company’s:
- Business model
- Revenue
- Profits over time
- Debt
- The share’s price-to-earnings (P/E) ratio
That way I can assess if a company is a good investment before putting my money in.
The flip side of this is having confidence in my choices. I bought Tesla near its peak in 2020, but then watched, horrified, as the value of the shares (and my savings) dropped. So, I sold my shares and took the loss. If I’d had the confidence to hold on to them, I’d have made a very decent profit by now.
These lessons feed into one another. If I had researched my choices properly, I would have had the confidence to hold onto them when the share price fell. I might even have been able to buy more.
Now I know to learn the fundamentals of what I’m investing in and to have the confidence to hold onto my shares if the price comes down.
I lacked patience
Patience is the greatest virtue in investing. A lack of it is what caused me to make so many of the other mistakes I made.
Warren Buffett once wrote that the stock market is a method of transferring money from the impatient to the patient. By this, he meant that a really good investor knows what they want to buy, but waits until the right time to do so. This can be when the stock is undervalued, or during a market crash like in 2020.
After that, the key is to hold onto the shares and stay confident.
Valuing a stock can be difficult, so here’s a great guide on how to do it.
Conclusion
Investing is difficult, especially for beginners. What I really needed all those months ago was someone to teach me the basics so that I could invest confidently. But now I’ve learned those hard lessons, I’ve bounced back and I’m prepared for the future.