Winning Mantra for amateur Investors

Winning Mantra for amateur Investors


Avoid unforced errors: winning mantra in amateur investing

While a professional investor makes money basis his superior investment skills, amateur investors can earn by avoiding mistakes


Welcome to the world of investing. 

One has come across many amateurs, part-time investors dreaming to become Warren Buffet or John Templeton. The game has to be played very differently. While a great fund manager strives to beat the others, most of us would be better off if we do not lose our money. And there are many ways and temptations if we want to lose money. Opportunities to lose abound. How do we safeguard our money is a big question. 

However, the answer is quite simple. If we know how we can lose money, we can try and avoid those possibilities. If we cannot avoid all the possibilities, can we reduce the potential impact of such negative events? What kind of mistakes do investors make? 

We have, over the years, observed some common investment mistakes investors have made, which have resulted into losses later: 

1. Some people invest in something that one does not know. So often, investors ask an expert’s opinion after one has invested the money. It is always good to take a second opinion or review the investments periodically. However, in both the cases, one must have done proper assessment before investing the money. There have been cases when the investor has bought some stocks only on the basis of a tip. One did not know whether the company is worth investing in or whether the person who gave the tip is really knowledgeable. 

2. Some assume that all fixed income products are guaranteed return products. In fact, there are some products, which are safe to invest in. However, such safe investments offer very low return. In order to earn higher than what these safe products offer, one must take some risk. Presence of risk means absence of guarantee. 

3. Sometimes investors invest money simply because they have seen a mutual fund scheme’s advertisement highlighting very good short-term performance. Apart from the advertisement, the source of such information could be various financial media and certain websites. It is important to remember the disclaimer in all mutual fund literature, “Past performance may or may not be sustained in future.” This also applies in case of physical assets like real estate and gold. We have seen many investors chasing these assets after the same have appreciated a lot. In the end, one ends up holding an asset, whose market price has come down. 

4. In the last few years, many have lost money in fraudulent schemes. There have been schemes offering very high returns and people have got lured into these. In the end, even the principal investment was also lost. Needless to say, no (or negligible) income was earned, too. We can go on and on with the examples. 

It is important to realize that an amateur is likely to make more mistakes. Know whether you are an amateur or a professional. Learning to be professional is good only if you are really going to spend the time learning and later using the skills acquired. Else, it might be better to know your own limitations and play your game accordingly. 

Understand various investment risks and potential fraud situations. Also please understand that any investment offering high returns carries high risk – it does not matter whether you understand the risk or not.

Happy Investing

Source:Moneycontrol.com