Mistakes people make while investing in stocks & Is investing Gambling?
People make a lot of mistakes while performing any given tasks if they don’t do sufficient research beforehand. We had previously written on learning from the mistakes of others while investing in stock markets.
Lets first try and discuss the relation between stock market investing and gambling.
Is Stock Market Investing Gambling?
People shy off from investing as they think it is gambling!
Many of our parents and grandparents didn’t invest as they thought investing is just like gambling otherwise a lot of them would have been least multi-millionaire (had they been invested for long-term).
Meaning of Investing and Gambling.
Merriam-Webster’s first definition for “invest” is: “to commit (money) in order to earn a financial return.” And the second definition is “to make use of for future benefits or advantages.”
Gamble – The first meaning is “to play a game for money or property” and the second is “to stake something on a contingency.”
Some say it investing is very much like gambling. While some say its myth comparing stock market investments with gambling.
What I feel – In a true sense if you go and see investing is buying the stock buy predicting the future (fundamentally or technically) with a sole aim to earn a profit. While in gambling you can’t predict any future, people blindly put money without knowing the future.
There are some important differences here, though. Investment brokers may live off salaries or commissions, but the day trader depends directly on the market for income. The gambler may have a lot of good days, but the bad week will sweep of the earnings from a few good days. There is no doubt that the psychology behind gambling and active trading seems a little similar, while gambling is considered illegal and illicit in many parts of the world, or at least looked down upon, day trading is mysterious and high sounding.
My point is that if you study the trends of the stock market, you can always gain with minimal (if any) loss. But mind this rigorous study! Gambling precludes some level of loss (and hopefully gain) — even the best poker players have lost money, although they feel that their skills can outwit most casual players.
The other difference is the expectation. Gamblers don’t go to Las Vegas with $100 hoping to come back with $115. They want to double or triple their money quickly. Investing is a slower process. You hope to double or your money but over a long-term horizon and not minutes or hours.
Markets depend on trends. Gambling is to go by the flow.
Study and knowledge in markets are essential. In gambling a good knowledge base is not required, it majorly depends on luck and some say alertness as well.
Some people do speculate the stock price but here diversification plays a key role. Also, a proper risk management system should be in place when it comes to investing.
Shying of investing in Stock is not done. A lot of famous investors like Warren Buffett, Rakesh Jhunjhunwala, etc became rich by investing. So can you. That’s why they say invest in knowledge and you will always be wealthy!
Common mistakes made while investing in stock markets
Investing is not a game. It requires serious efforts by an individual; like doing some kind of research and study. Investing is mainly done with an aim to make profits.
People make many mistakes while investing. People make mistakes because they become greedy to earn more and more money.
Being disciplined is one of the keys to investing.
So the first thing to avoid is not to be greedy. Being satisfied with what returns generated is the best strategy. Obviously one should strive for more but by taking calculated risks.
Secondly, people indulge in heavy trading which can get heavy losses to the people. I know a few people who invest 40% in stocks for long-term 20% in FD’s, 20% in gold and 20% in short-term equities and are very good with this strategy.
Check out the various investment options available to Indian Investors.
There are various other mistakes which people make in investing –
- Blindly following brokers tips without doing your own research.
- Blindly following gurus on social media, this has been a new trend these days.
- Blindly following others advice of friends and relatives.
- Investing in penny stocks with no sound fundamentals just because they are cheap. Buying a 10 Rs stock won’t make a profit always while buying a 1000 Rs stock with sound fundamental can make you decent returns. So one should focus on fundamentals and determine the stock value.
- Investing in the sector which is underperforming with a hope of it to revive.
- Not following the trend can also result in a big mistake.
- Pumping all the money in one stock – No diversification! This is one big mistake people who are new to investments make.
You know of some other mistakes people make share it across in the comment section and let others know.
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