The beginner mistakes you should avoid on the stock market

Don’t think ‘short term’

Investors sometimes go to the stock exchange with the idea of getting rich quick in the short term . To do this you must always buy and sell at the right time. Unfortunately, most investors always buy promising shares too late when the price has already taken a good ride. They sell too early, even before the share has reached its peak.

The reverse is just as common. The price of a stock starts to fall and avid investors buy the stock in the hope that it will recover soon. Without even wondering why that share has fallen so sharply. Is it a passing price correction and a nice buying opportunity? Or is there more to it and the company is really in bad paper, so that the price will plummet even further and your money will be blocked in a hopeless loss position?

Because the stock market can sometimes fluctuate, a golden tip: always invest with a long term in mind . Therefore, only get in quality stocks in which you really believe.

Avoid malicious copying

People are herd animals and that is no different for investors. If the masses ignore a stock, you may also be less likely to put your hard-earned money into it. But is that the right strategy?

Sometimes, as an investor, you have to do something contrary. Especially at extremes. When everyone starts investing in the stock market, it’s time to get out of the market. If investors put their money into a certain share en masse and the price goes through the roof, then you have to ask yourself whether that price increase is underpinned by strong profitability or good growth prospects for the company, or whether it is just the result of that strong buying wave. As a beginner on the stock market, it is often reassuring to see that others have the same investment strategy as you, but that certainly does not always pay off. 

Herd behavior is closely related to sentiment. The stock market can sometimes go wild due to a very negative or optimistic sentiment. Do not be led by this sentiment, but choose a stock as a starter because it has fundamentally strong prospects.

Don’t put all your money into 1 share

Those who, as an investor, only had bank shares in their portfolio in 2008, were definitely not experiencing the best of times. Putting all your money in just one stock or sector on the stock exchange is dangerous. If it ends up in stormy weather, you cannot offset the losses on those stocks by gains on other positions. That is why spread or diversification is one of the basic principles of investing on the stock market.

What can such a spread involve?

You can not only hold shares in your portfolio, but also a bond with an annual coupon , for example . With an ETF or investment fund, you buy a diversified investment in one go.

You can also build your own portfolio with stocks from various sectors (energy, telecom,…) or from different countries / regions (America, Europe,…).

Suppose that the European stock markets are not experiencing the best of times, then it is perfectly possible that the American economy is in much better shape. Only when there is a global crisis affecting all sectors can your entire portfolio be affected.

Don’t put all your money on the stock market

If you invest on the stock exchange, you do not do so with all your savings, but with a certain amount that you can “spare” or do not need in the short term. Build in some buffer for unforeseen expenses and put that money in a savings account. At the fair you get to work with what is left … and that does not necessarily have to be large amounts. This way you will not end up in a situation where you need money quickly and have to sell your shares in a hurry at a bad time at too low a price.

Investing on the stock market yields more, but is also more risky than saving your money. How risky depends on the type of investment product in which you invest. Turbos and options involve more risk than stocks , funds or ETFs . But there are also more stable stocks (also called value stocks) for equities, while growth stocks have a much more erratic price trend.

As an investor you must determine how much risk you want to take. The rule of thumb applies: the higher the risk, the greater the potential return. But the word “potential” is crucial here, it can also turn out differently.