How can you profit from other investors mistakes?

  • Posted By : reliancesmartmoney.com
  • Wednesday Jan 24, 2018

Key Takeaways

  • Do not keep unrealistic expectations
  • Be your own critic and constantly try to develop your strategies
  • Be unbiased, disciplined and firmly rooted
  • Be a value investor
  • Stop being emotional in investments
  • Find you secure spot and maintain strength of mind
  • Do not be ‘full-of-yourself’; the market is bigger than you
  • You should have an intelligent strategy in place
  • Never over-diversify
  • Buy-Low-Sell-High
  • Do not blindly follow the trends, devise your own approach with thorough analysis

If you are a regular investor, you know that investing comes with the highs and lows. One day you may lose money even after making calculative moves, while on the other you may just get lucky and make some profit. With time, you come to realise that making mistakes is part of investing and as the old adage goes, it is through these mistakes that you learn and keep getting better.

However, what if we tell you that you can become a better investor without making any mistakes?
Yes, the smart way to become a better investor is by simply learning from other investors’ mistakes and hence being a smart investor!

Let’s look at what we can learn from errors made by other investors.

1. Trying to invest for short-term in equity

Equity investments imply holding stocks for a long-term (over two years). Only this way you reap significant gains and beat market volatility. For short term requirements, choose to invest in Debt or Debt Mutual Fund instead.

2. Staking your entire corpus on single stock

Learn to balance and distribute your capital wisely.

3. Buying stocks with poor or broke balance sheets

It is highly imperative that you build a portfolio of growth-oriented companies.

4. Not building a checklist while deciding on investments

A checklist contains important information like below that helps you identify stocks correctly.

  • Business Standard
  • Survey
  • Current Fundamental Development

5. Not seeking risk at a young age

As you grow older, liabilities grow with you. It takes on to your risk-bearing aptitude. Start early in life!

6. Mixing up technical analysis with individual judgements

You cannot not-be-biased when involving your personal predictions; emotions are natural to get in way. Your so-called ‘gut-feel’ is not so cool for investments and decisions based on it (wholly or even partially) can prove inaccurate.

7. Adopting or imitating investment strategies

Each individual is unique and so is his investment attitude (and expectations). More so, experts have become experts only because of the years of devotion and analysis. While you may take their direction, you should avoid following them blindly.

8. Expecting the best and not preparing for the worst

It is an accepted fact that one cannot clearly tell how tomorrow will turn out. Similar is with the stock market, you cannot say for sure if oil prices may fall beyond a point unimaginable or a certain commodity may rise to a level that it may go out of reach. When stocks reverse, they do so rather abruptly not giving time to reflect.Trying to outsmart other investors and the market

9. Trying to outsmart other investors and the market

Investment is not a competition that you have with others; this is about you, your preferences and your analysis. Trying to beat the market is impractical. Identify your comfort zones, control your behavioural movements and invest cleanly.

10. Holding on to a stock even when it is not performing

This decision is mostly driven by emotions. Uphold a simple rule, if a stock has decided to turn against you, sell it.

11. Investing without a safety net

Consider this, you freefall from a height and hit the ground hard, brutal, right? Investments are similar to freefalls that require a safety net so that even if you fall, you survive. Consider alternatives like stop loss, book profit, options trading, etc. Find out more on how you can protect your losses.

12. Getting carried away with diversification

This is most likely, considering diversification is such a hip feature; nonetheless, overindulgence is hopeless. Stay balanced and diversify within limits.

13. Learn to differentiate between gambling, speculation and investment

  • There is no gambling in stock market. Period.
  • Speculation is intelligent future forecasting where traders use several tools besides thorough knowledge of fundamentals.
  • Then again trading is different from investing. As investors, you should not indulge in daily trading activities since it increases transaction costs and leaves meagre profits.

14. Being unrealistically opinionated and not analysing accurately

“I invested in a stock ABC at Rs. 100, felt pretty smart with my decision when it rose to Rs. 150 but then the company merged with another company XYZ that I had no clue about. I thought it wise to sell the stock some time later when it rose to Rs. 250 gasping about my Rs. 150 profit. But today that stock sits at Rs. 2000.” - You must have heard this at some point in time by someone or the other.

Never form an untimely opinion. Exiting abruptly without a base can prove extremely wrong in a long run.

Conclusion

In the end, it is most important to have a vision and a path. Investment is no less than a job or a business or life in a whole. What rules living, rules investments. Do not get overexcited or anxious on a profit or a loss, it is all a part of the game. Play it well and stick by the rules, and you will win.

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