3 Mistakes Beginner Stock Owners Make

Have you bought your first stock or maybe an ETF? For many people buying your first stock or other asset can be nerve-wrecking and clicking that “buy-button” takes courage. And now your stocks are in red and you’re not sure that this new venture was a good idea for you. There’s hope ahead because in this article I'll share some of the mistakes new stock holders make and if you made any of these mistakes, then forgive yourself. I've made made the same mistakes as a beginner and what changed for me was to learn about investing. Because many beginner shareholders make the mistake of speculating or trading instead of investing. Everyone is buying stocks with the hope that the asset will be worth more in the future, but a lot of beginners don’t know how to accomplish this. Here are 3 mistakes most of us have made when we were new investors and the answer to how to not do the mistakes again.

1) Not knowing the difference between stock price and value.

Some people don’t know that the stock price is not the actual value of the stock. This results in new stock owners buying a stock whenever they hear about it or when they finally have the courage to buy a stock. They buy it at the “market price”, the price the stock was trading for the minute they decided to become stock owners. The risk is that you're buying the stock at an all-time high. Knowing the value of the business behind the stock is the key investing – not knowing is pure speculation. Join my investing workshop where I give you a tool that calculates the value of a business and gives the exact stock price that you should buy that stock for.

2) Buying trends instead of focusing on the risks.

Many new stockholders spend time trying to figure out what will be trendy in the future. The large baby-boomer generation is getting older, so health care and biotech must go up, some people say. But the future is unpredictable. Think about Christmas in 2019 - who would've known that the world would shut down a few months later? Forecasting can be a hit or mis, and no one has a crystal ball. 

 “Green” and “sustainable” stocks are super trendy and though I’m all for investing with your values, just buying a stock because it’s been stamped green can be a very expensive adventure (read my commentary about investing with your values here). The most successful investor of all time, Warren Buffett, focuses on risk and has one rule when it comes to buying stocks: 

"The first rule of investing is don't lose money. And the second rule of investing is: don't forget the first rule."

Warren Buffett

It’s your hard-earned money you could be gambling away, and you don’t want to lose your funds, so make sure you’re buying quality stocks. Quality can be found by focusing on 3 important numbers – more about these numbers in this article.

In my investing workshop you'll learn how you can minimize risk and how to find wonderful, quality businesses to invest in. You'll be able to identify if advice is good or bad and know exactly what to do and no longer rely on other people's advice.

 

3) Asking for stock picking advice.

“Which stocks should I buy with my children’s savings?”, someone asked on Facebook today and the comment section was full of ideas to specific stocks and encouragement to watch a tv show with Jim Cramer, where he shares his advice on specific stocks. Some new shareholders make the mistake of buying a stock that they’ve heard about and that’s the only strategy they have. Maybe the stock advice was meant for day trading and the beginner was planning on keeping the stock in a portfolio for years. Day-trading means that within that day you’re buying and selling the stock. It’s also called momentum-trading and not meant for long-term investments.

The stranger might have had an incentive to recommend that stock or there’s another opaque reason behind the recommendation. The solution to not making this mistake anymore takes us back to point number 1 and 2: a new stock owner might be buying at the all-time high, they could be buying a trend and not knowing that it’s a higher risk profile that they’re comfortable with. So don't take advice from strangers. Commit to learning how to invest and make independent investing decisions.

Having an investing strategy will make it clearer for a beginner stock trader what other people’s intentions or strategies are, and it will be unnecessary to even ask for or take advice. I can tell you from my own personal experience that it's a relief and satisfying to make independent investing decisions. 

With an investing strategy the days of guessing, hoping, or speculating are over. I’m passionate about teaching Warren Buffett’s investing principles and I have a free masterclass coming up on September 20th, and a 5-week investing workshop starting 4th of October. Click on the link below to sign up:

Link to the Free Masterclass
Info about the 5-week Investing Workshop