The Motley Fool

5 Investment Mistakes to Avoid in the Stock Market

For most people, investing is simply about making money in the stock market.

However, avoiding losses can be just as important as making gains. If we can reduce the frequency and severity of our investing mistakes, we may just set the stage for us to generate good returns in the stock market.

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Mistakes can come in many forms. The hardest ones to avoid may be psychological in nature. Here are some to be aware of.

Mistakes No. 1 to 4: Confirmation bias, anchoring bias, hindsight bias and survivorship bias 

I wrote about the confirmation bias, anchoring bias, hindsight bias, and survivorship bias in earlier articles. You can catch them in hereherehere and here respectively.

Mistake No. 5: Home bias

Home bias can be described as an investor’s strong preference towards investing in companies which are located in his or her home country (in our context, the country would be Singapore).

Investors’ familiarity with their immediate surroundings may cause them to feel more comfortable with a local company. This may then provide the illusion of safety.

Thing is, investing in things closer to home may not always be safer.

Singapore-based companies such as Keppel Corporation Limited (SGX: BN4) and SembCorp Marine Ltd (SGX: S51) has endured significant falls in their share price as a result of a global plunge in oil prices. Singapore companies may also be prone to regional currency movements and be reliant on the inflow of tourists to Singapore. These are all examples of how Singapore companies can be buffeted by events outside Singapore’s shores.

Regardless of where the company is located, we may want to think through the potential risks before investing.

A Fool’s take

Some mistakes can be obvious, and some may not be as obvious.

The quintet of biases above may fall in the latter form of mistakes. If we can be aware of our own biases, we may save ourselves from mistakes in the future that may have been avoidable.

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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 Chin Hui Leong doesn't own shares in any company mentioned.