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3 Common Mistakes New Investors Make

oops mistakeInvesting is not a talent that just comes with birth. It takes time and effort to hone the skill. Therefore, when you take your first baby-steps in your investing journey, you are bound to make some mistakes.

Using Too Much Leverage

At the start of your investing journey, it’s likely you’ll have to operate with a small capital base. As such, there is a real temptation for the use of leverage, in the hope that it could lead to riches sooner rather later.

However, leverage has always been a double-edged sword. If we are not careful, we can easily lose everything and more.

Anyone who invested in Blumont Group (SGX: A33), Asiasons Capital (SGX: 5ET) or LionGold Corp (SGX: A78) before their epic collapses in early October last year would still be licking their wounds… those who did so with margin (a form of leverage in the stock market) would have fared way worse as margin greatly amplifies losses.

Confusing Investing with Speculation

The concept of investing in businesses – not tickers – might not be easily understood right from the get-go. Thus, you might find yourself easily influenced by the people around you and become interested in every ‘investment’ idea that you come across.

It can then become dangerous if you buy and sell shares in companies without doing proper research. While the act of looking at stocks as a piece of business cannot be more different than someone who’s sole focus is on squiggly lines in a chart, there is still only a thin line between investing and speculation.

It is important to learn how to pace yourself, to not get excited about every idea you encounter. Creating a checklist is one method you can use to hone your research skills on any company before you actually make that buy order online or through your broker

Procrastination

The act of procrastinating is just part of being human. One of the biggest regrets anyone can have is of missed opportunity.

There will be times when you have done great research on a company and believe it to be a solid investing opportunity but somehow just fail to act. Billionaire investor Warren Buffett calls this “thumb-sucking”.

To deal with it, you can find friends or partners to conduct research together. In this way, the both of you can keep each other in check from the dreaded “thumb-sucking”. That’s a good way, in my opinion, to help prevent you from falling into the procrastination trap.

Foolish Bottom Line

Everyone will make mistakes from time to time, what’s important is that you can learn from it. Money isn’t just made from finding great investments, it’s also made when mistakes aren’t made.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.