Few of the mistakes investor should avoid while investing in shares

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Few of the mistakes investor should avoid while investing in shares
Investment in stock markets is no easy game and to emerge as a successful investor which though despite all cautiousness and acumen is uncertain, first-time investors as well as veterans with years of experience into investing in stocks should avoid few of these commonly made mistakes to reduce their chances of gains.

Choice of under-performing stock: The selection of a company stock to be included in the equity portfolio determines the potential gains or losses from the investment. Years of investment research has underlined that the right stocks to be added to one's kitty are the not so large companies and companies that display momentum in respect of the share price going upwards on a constant basis in at least the short term.

Misallocation or Under-diversification: Mis allocation and under-diversification is also the problem or a most common mistake seen with equity investors in India. As with the overall financial portfolio, apt level of diversification is also called for in case of equity investments. Else an investor will find himself subjected to a high degree of volatility by putting bet on a single company stock.

An average Indian investor in equity is suggested to hold not over 3.5 stocks in an average. More, so they wish to gain from each of the investment and do not emphasize on the gains in the overall portfolio and instead view each of the investment separately. And in the case, they may be attracted to put their bet on highly traded stocks and may square off their position at the wrong time.

Disposition effect: More so in the case of stock market investment, investors have been seen to sell off their stock holding in a particular company stock when the share price increases marginally and retain their investment in a stock when its price decreases by some value and losses accrue to the investor. In fact such shares are held for a longer time frame in the assumption that share price will take a turn around and investor will be able to recoup his or her losses. Such a mistake should be avoided though the proposition is only a generic idea to go about with and can vary from case to case basis.

Frequent portfolio churning: Investors in the false assumption that they have got versed in the art and technique of timing the market fall prey to frequent churning of their stock portfolio. But regardless of the return that though is not sure to be on the upside, frequent churning by investors attracts transaction cost each time you trade so over trading that results in the implication of higher charges and taxes should be avoided. Also, the proposition is negated as increased trading does not guarantees higher returns and chances are that you may lose largely due to more of trading.

GoodReturns.in

Read more about: investors, shares, stocks, stock market
Story first published: Thursday, April 24, 2014, 10:08 [IST]
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