Mistakes

[Mouse]

Hi,

I've been reading a book called "25 Stupid Mistakes you don't want to make in the Stock Market". It's an American book but has some good tips in it (in my opinion anyway).

So I thought I'd ask the question ... What are the mistakes you see people make when they are dealing with the stock market? Or what are the mistakes you have made that others can learn from?

I've made heaps of mistakes, but my number one mistake I learnt from was getting caught up in the hype when listening to people talk about wonderful shares they have ... I've found that by the time I buy them everyone else is selling!!! Now I take it slower and still listen to other people, but I learnt to check things out for myself rathen than jump fast so that I don't miss the "opportunity".

cheers
Mouse

 

[clowboy]

Well I think that sums it up nicely really.


"Jumping the gun"

Also known as GREED, bigest mistake of me and of those I know.

 

[nizar]

i think the key to investing is patience...

U can always make money from the share-market over the long term, but when u change things to chase those short term gains, thats when u stuff things up...

short-term trading is much more riskier if u ask me, because in the short term, people dont care as much about fundamentals, just on hype..

if u invest in a well-managed company in the right sector, which has stable and growing earnings, ull most likely come out on top...

If a stock u owns drops, dont just sell to "limit the losses", have a look why did it fall? maybe u can pick up a bargain if the market over-reacts.... HSP is an example here..

Woodside was <$2 in 1990, now its >$40, but it was 15yrs... buy 2day, of course in 6 months it may go down, but in 10-15yrs, itll always be a winner...

"The sharemarket is a transfer mechanism, transferring wealth from those that have no patience, to those that do" - Warren Buffet

 

[carpets]

Two of the mistakes I have made since starting on the stock market have been:
1. Having unrealistic growth expectations for a stock, especially with penny stocks. That is, buying cheap and thinking that a something will double (or more) in the short to medium term. It does happen however Ive found that you need to have been following something for a while to really know what the price is sensitive too and when the price is really going to go. One example of this was my purchase of MSC about 6 months ago at about 12c, looking at the graph, it seemed that it had some potential to go higher, adding to this was some reports that I had read that indicated that it had some really good short term prospects. I thought, it only cost 12c so it could easily go to 24c.... and then watched it go all the way to about 3.2c.
2. From some of the stocks I have invested in, I have found that just because something might have been >$10 in the past (say 5-15 years ago) and is now <$1 doesnt necessarily mean it will go to those levels again. It might retrace, however it gave me a false sense of security thinking that something has been really high in the past and therefore it is capable of reaching those levels again.

 

[tarnor]

would have to be falling in love with a share and refusing to 'let go'.. thiers always another one out thier that will make you a killing but when someone gets stuck on a stock they often stop looking at others .. they just sit thier and wait to get thier money money back when they could have moved on quickly a long time ago..

that was my biggest mistake when i started :/

 

[carpets]

would have to be falling in love with a share and refusing to 'let go'.. thiers always another one out thier that will make you a killing but when someone gets stuck on a stock they often stop looking at others .. they just sit thier and wait to get thier money money back when they could have moved on quickly a long time ago..

that was my biggest mistake when i started :/

sounds quite emotional...

 

[carpets]

Ive beein reading a few of Daryl Guppys books (which are really good!), and he reakons one of the big mistakes made by people is thinking that you can predict what the share price is going to do just based on the chart. He outlines the difference between prediction (Its going to go up or down) and probability (the chance of it going up or down). He says that you cant say for sure that its going to go up or its going to go down, buy you can make a reasonable estimate based on the probability. Note: not quantitative but qualitative probabilty.

 

[Dutchy3]

Not waiting for a clear entry signal ie assuming a stock is a buy because I think I've seen something like it in the past.

Selling the winners too quick

Basically I'm inpatient (and can't spell for quids!)

 

[Mouse]

Thanks everyone for answering. I've made all of those mistakes other than the one carpets talks about with the charts ... and the only reason I haven't made that one is because I don't fully understand charting yet!!

cheers
Mouse

 

[trader]

Thanks everyone for answering. I've made all of those mistakes other than the one carpets talks about with the charts ... and the only reason I haven't made that one is because I don't fully understand charting yet!!

cheers
Mouse

Don't worry about charting , charts couldn't have predicted a drop in HSP or a jump in SBM or if the quarter results just released of FLX are any good.

 

[bullmarket]

Morning everyone

From what I saw over at Commsec chat, I get the impression that a common mistake some traders make is trying to pick bottoms and tops before they have actually occured....ie...when a stock falls back to a previous support, some will see it as a buy because it had bounced of that support in the past. But there is no guarantee it will again this time. So in affect, traders buying at support without waiting to see if it is likely to rebound are purely punting imo because no matter what anyone tells you no-one can say with 100% certainty that a top or bottom has occured until it has actually passed to some extent. A similar concept applies when looking to sell in profit.

Depending on one's risk profile and objectives, a safer play would be to accept sacrificing say 1-2% of potential profit by waiting to see if price shows signs of rebounding before buying. After all, if a share shows signs of rebounding on a chart then the probability of it then continuing to rebound/rally is higher than when it first retested previous support at which time it could easily have continued falling further.

Another mistake is that some traders/investors do not have a written plan. I believe a plan should be penned to paper because psychologically I think one is more likely to stick to it and review it periodically or as required if it is written down than just rather being scrambled around in one's head being influenced by circumstances/events driven emotions (fear and greed).

food for thought

cheers

bullmarket

 

[Julia]

The biggest mistake I made was trusting the advice of a full service broker! Granted I got one out-performer, but several non-performers. These have now been sold and the only positive to come out of them was the useful capital loss to offset CGT. That's not a good enough reason to have a share!

Other things I have learned is how dumb it is to form an emotional attachment to a stock just because you have made a large gain from it.
I needed to understand that these gains are not always sustainable and be prepared to sell when the SP has obviously started downwards. I used to have the illusion that because a SP has reached some magic figure it will ipso facto get back there in the future.

Re my first paragraph above in the light of Nick Radge's philosophy, I guess I would have to concede that the out-performer above, plus a couple of lesser gains, did in fact mean the broker's recommendations had a nett positive outcome. Still would never recommend them, though!

Julia

 

[happytrader]

Hi Mouse

As a trader definitely putting the method before mindset was my biggest mistake. Becoming aware of my emotional attachment to money and success and letting go of limiting beliefs first would have saved a lot of time and pain. Know and accept thy self (and not just the good bits) I reckon thats why the armed forces do such a good job of turning out obedient personnel. They break them down, then build them up and shape them.

Cheers

Happytrader

 

[excalibur]

Morning everyone

From what I saw over at Commsec chat, I get the impression that a common mistake some traders make is trying to pick bottoms and tops before they have actually occured....ie...when a stock falls back to a previous support, some will see it as a buy because it had bounced of that support in the past. But there is no guarantee it will again this time. So in affect, traders buying at support without waiting to see if it is likely to rebound are purely punting imo because no matter what anyone tells you no-one can say with 100% certainty that a top or bottom has occured until it has actually passed to some extent. A similar concept applies when looking to sell in profit.

Depending on one's risk profile and objectives, a safer play would be to accept sacrificing say 1-2% of potential profit by waiting to see if price shows signs of rebounding before buying. After all, if a share shows signs of rebounding on a chart then the probability of it then continuing to rebound/rally is higher than when it first retested previous support at which time it could easily have continued falling further.

Another mistake is that some traders/investors do not have a written plan. I believe a plan should be penned to paper because psychologically I think one is more likely to stick to it and review it periodically or as required if it is written down than just rather being scrambled around in one's head being influenced by circumstances/events driven emotions (fear and greed).

food for thought

cheers

bullmarket

Hi Bull,

I think your third quote is very interesting and would like to start a new thread to this proposition. ( Which is planning)
Cheers,
EX

 

[wayneL]

Don't worry about charting , charts couldn't have predicted a drop in HSP or a jump in SBM or if the quarter results just released of FLX are any good.

That's quite a silly thing to say.

Charting or fundamentals or a combination of the two is a choice entirely up to the individual. Both methods work

 

[trader]

That's quite a silly thing to say.

Charting or fundamentals or a combination of the two is a choice entirely up to the individual. Both methods work

I didn't say faundamentals or a combination of the two is bad , only that
worrying too much about the charting is. I think that on this forum there
are too many people who invest in a company based on what a chart
says eg ( if there is white candles or a double bottom ) whereas they
should be looking at both , why is the chart going up , if you can't find
a fundamental reason as to why it is going up don't buy , I think charting
is the lazy way out and you can get easily sucker. But a fool and his
money is easily parted.

 

[bullmarket]

Hi trader

I didn't say faundamentals or a combination of the two is bad , only that
worrying too much about the charting is. I think that on this forum there
are too many people who invest in a company based on what a chart
says eg ( if there is white candles or a double bottom ) whereas they
should be looking at both , why is the chart going up , if you can't find
a fundamental reason as to why it is going up don't buy , I think charting
is the lazy way out and you can get easily sucker. But a fool and his
money is easily parted.

I can see where you're coming from with the above comments and I agree generally with you but I can also see why some day or very short term traders (say who only plan to hold a stock for a few days at most) would rely heavily mainly on charts and their interpretation of them. Imo, the shorter the time frame one trades the less important company and economic fundamentals are. A day or very short term trader will be more interested in trading the current sentiment/momentum, regardless of the fundamentals driving it, of which charting can give a guide to. I wouldn't expect a true day trader to have much interest in company fundamentals.

But a charting trap for new players is thinking that charts tell what will happen in at least the short term future. They won't.!!..My view of charts is that they give a picture of what has happened in the past (re trends, support, resistance) and so give an indication only of what might happen in the future. So in general, a day or short term trader will look for trend and momentum reversals on charts to trade imo.

Personally, I'm in the same camp as you re fundamentals. I'm an investor and not a trader. I use company fundamentals and valuations to determine whether a company is worth following and if it is, then I look at the company's chart to help time buying points.

In summary, I see 3 kinds of investors/traders

1) those which use technical analysis solely
2) those that use fundamental analysis solely
3) those that use a combination of technical/fundamental analysis

Each have their pros and cons

I'm in the 3rd group

Oh...I suppose there is a 4th group.....those that use none of the above and simply and purely PUNT.....

cheers

bullmarket

 

[ob1kenobi]

Mistakes = Lack of research or failure to follow through the research thoroughly.

The others are: you might have chosen the right time with the right amount of money but chosen the wrong investment. You might have the right money and the right investment but chosen the wrong time to go into it. You might have the right time and the right investment but not enough money to participate in it.

 

[It's Snake Pliskin]

I didn't say faundamentals or a combination of the two is bad , only that
worrying too much about the charting is. I think that on this forum there
are too many people who invest in a company based on what a chart
says eg ( if there is white candles or a double bottom ) whereas they
should be looking at both , why is the chart going up , if you can't find
a fundamental reason as to why it is going up don't buy , I think charting
is the lazy way out and you can get easily sucker. But a fool and his
money is easily parted.

Using charts is the best way to determine what has happened to a stock in the past. It is used to help predict the balance of probabilities of a stock future direction. It helps mitigate any future loss because stop loss levels can be determine based on support lines and the like.

TO invest by just using charts is ludicrous as written by you. To invest using the fundamentals may be a smart thing in my opinion, however. Don`t confuse yourself with trading and investing, they are like apples and oranges.

Yes a fool is easily parted from his/her money. Invalidating charts may be one speedy way of doing that!

Regards
Snake

 

[It's Snake Pliskin]

These have now been sold and the only positive to come out of them was the useful capital loss to offset CGT.

This is not useful because it erodes the compounding effect of your invested capital. Sure you pay less tax, but ideally you would want to pay more tax.