Eightmistakestoavoidwhileinvesting - Eight mistakes to...

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Eight mistakes to avoid while investing Investing is not just about picking winners, but also about avoiding mistakes. Retail investors can be better off if they avoid making the following mistakes. Overconfidence - Don't be unrealistically optimistic A bull market makes retail investors believe that they are geniuses - after all, anything they put money into goes up. This overconfidence in their own abilities leads to a complete disregard of the risks involved. Every new generation that invests in the market ignores past experience. These new investors wrongly believe that stock prices only go up. Don't be overconfident and don't start believing that you have superior skills compared to the market. Recognise that in a bull market you are benefiting because the whole market is going up. If those around you are getting unrealistically optimistic, start managing your risk accordingly. Remember that sometimes markets do come crashing down. Over enthusiasm to trade - Not every ball should be hit Good batsmen realise that some balls outside the off-stump should be left alone. Similarly, professional investors realise that sometimes its better to just stand still than to rush into a stock. Retail investors often make the mistake of "flashing outside the off-stump" because they cannot resist the temptation to trade in every opportunity. And, like an inexperienced batsman, they suffer the same fate. Too much trading will lead to a lot of churn, extra commissions to your broker and huge tax implications
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This note was uploaded on 12/25/2011 for the course FIN 123 taught by Professor Rehman during the Winter '11 term at IUPUC.

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Eightmistakestoavoidwhileinvesting - Eight mistakes to...

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