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Avoid These Common Mistakes In Stock Investments And Earn Good Returns

Updated on August 21, 2011

Before you start investing in stock market, remember that you can not become rich overnight. At the same time, if you do your research properly and plan your investments, you can definitely make some good money. But, there are some common mistakes committed by investors like you and these mistakes may land you in deep trouble. Try to avoid them and safeguard yourself from such troubles. Let us have a look at the common mistakes committed by investors.

- Avoid investing based on stories heard from others. This includes what you hear on the media also. Instead of succumbing to temptations when you hear such stories, spend some time and do your research. Temptations may force you to over-invest in such stocks and when things go wrong, you may face a huge blow. If you decide to invest without researching, you should at least limit your investment. This will help you to limit your losses also if something goes awry. Nowadays, doing research about stocks is very easy because through the Internet, you get all the details about companies. You can easily know the strength of any company and also know the returns that can reasonably be expected by investing in those stocks.

- Likewise, believing in rumors is also dangerous. Many a time, they will just remain rumors only and will never become true. If you come to know of such rumors, you must adopt a wait-and-watch approach. Once again, your investment should be based on your research and not on any rumors.

- Never sell your stocks when there is a panic selling in the stock market. Panic selling is mostly triggered by rumors only. It is better to stay invested even when there is a panic selling going on in the market. The market will definitely bounce back after this trend is over. You should wait for it to sell your stocks so that you can have some decent returns.

- Too much spreading of stocks should also be avoided. Diversification is good to a certain extent but it should not be over-done. You may also find it difficult to manage your portfolio if your investment is spread over a number of stocks. Further, if your total investment is small, each of your stock will be too small to fetch you sizable returns.

- Avoid being excessively confident about your own analysis. Overconfidence may lead to excessive investment and this may prove to be dangerous. Put a stop-loss order on every "buy". This will limit your losses if something goes wrong and the stock-value declines instead of appreciating. Likewise, refrain from being excessively dependent upon the findings of analysts. Even analysts can not make accurate predictions of stock movements. Of course, it is good to do your research and also listen to the opinions of analysts. But, depending excessively on them is also wrong.

Refrain from committing the above mistakes if you want to prevent losses and earn good returns from stock market. The best advice is to limit your losses by putting a stop-loss order. By doing so, even if you are wrong more than half of the time, you can definitely earn good returns in this volatile market.


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