Entering the stock market is easy. This does not require a lot of free time, a deep understanding of complex economic processes or a large amount of money at the start. It is enough to open a brokerage account, deposit at least a minimum amount of funds into it, and purchase your first asset in a couple of clicks.
The biggest enemy of an investor in the market is reckless actions. Most mistakes and financial losses can be avoided if you follow the basic safety rules for working in the stock market.
What should not be done by a novice investor on the stock exchange?
1. Invest what you can’t afford to lose.
The stock market is a convenient platform for placing “surplus” funds over a long time horizon – that is, the money that is not required for current consumption and the formation of a financial airbag. If you think that current savings will be needed for a long time, then it makes sense to invest at least part of these funds in efficient businesses that grow and generate positive cash flow.
2. Depend on emotions and other people’s opinions
Strong emotions are the worst enemy of a wise investor, as they often cause them to act irrationally and make mistakes. And it doesn’t matter if a person experiences excitement or fear – both feelings can lead to active actions that minimize profits or maximize losses.
You should also not blindly trust the opinion of others, no matter how authoritative it may seem. Any person can be mistaken or have their own selfish interest.
3. Making dangerous bets or using the exchange as a casino
This point is closely related to the previous one. Excitement is one of the most dangerous emotional states that threatens the investor with serious financial losses. The stock market is a place of concentration of professionals. The hope of beating someone here and making a lot of money quickly looks naive, especially for a novice investor who does not have enough practical experience.
4. Trade with other people’s funds
If you are just starting to work on the exchange, then it is better to refrain from buying with borrowed funds as well. As tempting as it may be to increase your profits with leverage, remember that its effect works the other way too—multiplying your financial losses if the market or individual stock quotes go in the wrong direction for the investor.
5. Have a high capital turnover
The success of trading does not depend on the frequency of transactions. This statement may be true for the speculator, but not for the investor. If you use a fundamental approach when working in the stock market, then the main resource that you should rely on is time. It is it that is able to reveal the potential and the true value of the asset. But this requires holding a security for a long time – years, and sometimes decades.
6. Don’t diversify your portfolio
“Don’t put all your eggs in one basket” is one of the basic tenets of financial literacy. However, in reality, it may not be so easy for a beginner to competently diversify his portfolio. Often, investors who are just entering the stock market do not yet have a lot of capital.