5 Basic Investing Mistakes That You Shouldn’t Make

In expert tennis, 80% of the points are won, while in amateur tennis, 80% are lost. The same is true for wrestling, chess, and investing: Beginners should focus on avoiding mistakes, experts on making great moves.”

—Erik Falkenstein

Swedish economist Erik Falkenstein makes a good point. For those of us who are just beginning to invest, we may want to think of reducing errors first.

His point became more apparent while I was chatting with some ex-colleagues who are new to investing.

It dawned on me that there are several basic misconceptions about investing that may be prevalent among new investors. I feel that most of these errors can be easily avoided if only people were made more aware. So, here’re five such mistakes.

Mistake No. 1: The expensive stock click here

Mistake No. 2: The uncertainty paradox click here

Mistake No. 3: Chasing short term gains click here

Mistake No. 4: The fallacy of a scary stock market click here

Mistake No. 5: Investing based on newspaper headlines

“I have been reading the news that many company stocks are undervalued right now after a big drop in August.”

Newspapers can be good for keeping up to date with business news.

But if we are looking to time our entry into the stock market using the newspaper, it may turn out to be less useful. Thing is, information is easy to access nowadays. This can be a boon or bane. We have tonnes of information available – but what’s important is how we’re using it.

Instead of letting the newspaper tell you whether a stock is cheap or not, it may be better to just go to the source of the information.

Take Super Group Ltd (SGX: S10) for instance. The instant coffee purveyor shares webcasts of its earnings briefings and the presentation materials used; these help explain its corporate strategy and financial performance. All these information are easily accessible for free. As such, we may want to focus on the information that helps us make better investment decisions rather than newspaper headlines which may or may not be helpful.

Foolish takeaway

If you are starting to invest, here are a few things you might want to keep in mind: (1) Understanding the difference between price and value may be where you want to start; buying shares with low prices might not always work out. (2) Trading around uncertain global events is not a good way to invest. (3) Capping your gains can hobble your future returns. (4) The falling stock market need not necessarily be scary. (5) Don’t invest based on newspaper headlines.

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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 owns shares in Super Group.