What to do if you want a loss, or the small investor mistake
There are many good solutions to how to win, but all of this involves not making the mistakes listed here. There are a lot of basic small investor mistakes, now the most common ones are coming.
Avoiding these mistakes makes it much easier for you to win your investment.
The number one small investor mistake is when you start without experience and knowledge.
This is even apostrophized as “the tragedy of the small investor.” What does this look like?
The average small investor by itself does not often show interest in assets where the price is down. For some reason, they think that if it’s cheap, it’s not good, because if it hasn’t grown so far, it won’t. So nobody wants to have it.
Yet this is a buy-in situation that large investors know, and that everyone knows at the vegetable market anyway.
After all, you don’t even say about tomatoes in the middle of summer that the nice and smiling fruit is cheap now, but we don’t cook ratatouille, we wait until the ingredient is at a gold price in February.
In the case of investments alone, many people do not understand to buy at a low price and sell at a high price.
What happens when large investors see an undervalued asset?
It’s a small investor’s mistake not to pay attention to the big ones. When the big ones see an asset that’s price is low, but otherwise its valueable, or at least its expected value is high (this is called undervaluation), they start pouring money into that asset. Due to the increased demand, the price of this will also start to rise.
The more the news on TV, radio, or newspapers is about rising prices, the more small investors are interested in it. This is how the next small investor mistake comes when they buy at the end of the rising phase.
Anyone who understands finance can already see from various indicators or just correlations that an asset may be overvalued, so it’s time to get out before it’s too late. After all, the easiest way to make exchange rate gains is to buy cheaply, sell expensively. You just need to know when to do what.
On the other hand, the small investor does not know the rules of the game, so sell after a fall. Bought expensively, sells cheaply.
That is, in short, it is the small investor’s mistake to make a loss because they buy when they should rather sell and sell when there is a buy opportunity.
Even before you ask that the big ones will only win, the answer is no. An exchange rate drop can also occur when an external factor affects the processes.
Another issue is that because of their knowledge, big ones don’t walk into the bugs you can see here so easily, so they can stand them so much.
Involving the emotions is also a small investor’s mistake
Finance is a world of numbers. Obviously, you can be happy with your successes, you can enjoy the results you have achieved, but do these after everything.
If something has no place in finances, then those are the emotions. The average small investor often suffers a loss because they mix in emotions or, if appropriate, only uses them. Most of the time, fear and greed.
The fear
They can be afraid of many things, the end result is typically a loss.
They may be afraid of being left out, so can even get in when really don’t need to, or to a place for because of a circle of friends. After all, if all their friends think it is good, they may be afraid of what they will say if they have a different opinion.
Fear also manifests as panic as the exchange rate moves downward. Then they don’t wait, rather run away, i.e. in this case, the small investor’s mistake is when they realize the loss.
Greed
And greed overrides common sense.
When a small investor hears that someone promises a high return, and as a guarantee they say what he wants to hear, but they can no longer certify, he does not think, but says yes. The small investor’s mistake is that the promise of a high return overrides everything.
It’s a small investor’s mistake not to look at it from the right perspective
When you’re too close to something, you lose the point. Without info, and without seeing the whole picture, it is extremely hard to make a good decision.
You’re getting in the wrong place
When you don’t take a step back and don’t see the whole situation, you can very easily run into saying yes to a situation that doesn’t fit your goals at all. It will cost you a lot either when you get out of it anyway, or when you don’t get the results you planned.
You get out at the wrong time
The problem of the wrong perspective can also appear when you have chosen the right tool, but it is precisely because of a 1-1 detail you get out of a situation when it is not absolutely necessary.
This 1-1 detail can be either an indicator or a resemblance to some other situation. This, in turn, can be overridden by other events, as each situation is slightly different. Determining the best exit point for you is not easy, what’s more, it can be difficult, especially in a more complex situation. This is also why you can see that reputable analysts also tend to argue about exactly what is to be expected.
You are not relying on the right source.
The situation is further exacerbated when your financial advisor is on TV and radio.
Like any other profession, say doctors, teachers, but even a good chef, a trusted financial advisor takes years to learn do his or her own job at the right level. And this cannot be replaced by a TV show that lives off the sensation.
On TV, you’ll typically only hear news that grabs the attention of the average person, all at a level that everyone understands.
You can hear this level of news that
- stock prices are at an all-time high, equities soar,
- the central bank raised interest rates,
- many are looking for investment property.
It’s nice and good so far, but you don’t know anything about the background of the events, so you won’t learn things from it that
- why does it happen
- how long the event lasts
- what consequences are expected and over what period of time
So it just doesn’t turn out what the right move is for you, what you can do with this info.And the direct consequence of this is the wrong decision.
Choosing a super direction is also a common mistake for small investors
If you want a loss (so that, you insist on the existence of a small investor error :)), then choose for yourself a single investment that you think meets all your goals. Of course, you don’t have to know this tool, it’s enough to say that about it. Small investors often suffer losses due to a lack of diversification.
It is no coincidence that there are many investments. Divide your money between them.
Misuse of diversification
Some people are already trying to use diversification. Regardless, mainly because of a lack of knowledge, they don’t know what to choose from. The direct dowry of this is the mistake of a small investor when they choose practically the same instrument with the same knowledge and attributes, only with different names.
In this case, don’t be surprised that if they moved up completely together, you’ll see the same effect going down, so you don’t really diversify your portfolio, even if you’ve invested in several different instruments anyway.
Proper use of diversification
In this case, your available return will not decrease much, but your risk will fall even more.
Diversification between assets
As much as you can lose with one tool, you extract it with the other.
You don’t have to divide your money in an unmanageable direction, but you have many choices:
- diversification by asset class (eg stock, bond)
- geographical diversification (eg developing countries, developed countries)
- in the case of shares, a share with 1-1 attribution
Diversification over time
For your time-varying goals, you choose devices that have the recommended time period for that time period. This includes two things, among others:
- regular review of goals, typically semi-annually: What it took another 10 years 15 years ago is no longer needed, only 5, so another tool is more proper.
- proper use of the time limit: manage your time freely
The time limit
It’s no coincidence that stocks are offered for a period longer than 5 years, but you can observe the recommended time periods for any other asset. Of course, that doesn’t mean you have to peak your money there until then.
Interpretation of the time limit
All it means is to plan so that you can do what you want, but the market won’t adapt to you.
Suppose you have chosen a direction with growth potential. At the moment, it seems that in 2 years the exchange rate will reach the level where you want to get out. In other words, after a proper analysis, it seems that although the exchange rate is still very low, it may even remain low for a while, but during these 2 years everything will settle down and you will experience a significant exchange rate increase.
The lack of a time limit here means that if the time required is not 2 years but 5, you will not be in doubt. After all, the analyst is not a predictor. There’s something they read from the numbers, but there’s something they can’t anticipate.
Improper use of the time limit and recommended time frame as a retail investor’s mistake
The mistake of a small investor starts there by investing money in such assets in hopes of the expected growth and profits they need in a relatively short period of time, and does so in a way that there is no alternative. Let’s say within 1-2 years it is vital for him to at least get the capital back, but if he can win on it too and there is no built up emergency reserve. And from here on out, we can mostly call it gambling, which if it doesn’t come in, it causes loss and completely unnecessary stress.
Kérdések:
- Did you run into any of these mistakes?
- What can you do to manage your money at an ever higher level?
- Do you think this list will change as an entrepreneur?
If you want to avoid these mistakes or just have a question, you can contact us here. I also enjoy reading your opinion in social media comments.