Welcome to the first chapter in the iWatch Markets Investing 101 series. I remember being a new member of the investing community. Like most, I made some pretty big mistakes. Of course, had I listened to the experts, many of these mistakes could have been avoided. So, if you’re a rookie, do like I didn’t and avoid the common rookie mistakes below:
Rookie Mistake #1: Getting Involved In Penny Stocks
While penny stocks may offer opportunities for seasoned investors, these aren’t the types of stocks that beginner traders want to dabble in.
What is a penny stock?
By definition, a penny stock is any stock that trades for under $5 per share or any stock that doesn’t trade on the NASDAQ or NYSE.
Why shouldn’t beginners invest in penny stocks?
Penny stocks are known to be highly speculative investments. The companies that issue these shares are relatively small. Many of them may have a concept, but don’t even have a product on the market. As a result, the risks are elevated. While there are some great penny stocks out there, it takes a fine tuned eye to catch the diamond in the rough. Therefore, these stocks should only be traded after plenty of experience investing in less risky territory.
Rookie Mistake #2: Making Moves Based On Rumors
Rumors take place in the market all the time. There are ways to use them to your advantage, riding the waves they cause in the market and turning a profit. However, doing so can be very risky.
Why do rumors lead to movement in the stock market?
Rumors are a common occurrence in the stock market. Unfortunately, some investors and traders try to game the system by promoting rumors surrounding takeovers, new products, management changes, and much more. When the masses see these rumors in message boards, they tend to react, turning the rumor into a catalyst and moving the market in the direction the manipulator hoped for.
Why are rumors so dangerous when investing?
Making investments based on false information is a great way to turn a loss. The reality is that once the excitement surrounding the rumor dies down, investors will dig in and see what’s really happening. When the rumors are debunked, gains or declines associated with the rumors will reverse. If you get caught in that reversal after buying into a rumor at the wrong time, you could see tremendous losses. So, it’s a good idea to avoid investing in rumors until you become a seasoned pro!
Rookie Mistake #3: Using Margins
There is a need for margins in some cases. If you’re new however, it’s best to steer clear.
What are margins in the stock market?
Margins are essentially borrowed money. They allow stock, currency and commodity traders the ability to trader larger volumes of assets with limited resources.
Why are margins dangerous for rookies?
Margins catch the attention of beginner traders due to the amplification of returns that they can offer. However, they’re also incredibly dangerous. Making the wrong move on margins will ultimately amplify losses, leaving the rookie holding the bag at the end.
Do Yourself A Favor
If you’re considering getting started in the investing world, do yourself a favor. Avoid making the mistakes listed above. Doing so could save you hundreds or even thousands of dollars, plus the extra hundred or so you’ll spend on headache meds!