Avoiding Common Pitfalls When Investing In Stocks

These can be frightening times for those who are not used to investing in the stock market: there's no denying it's a bear market right now, but things will eventually turn themselves around. Just make sure to avoid the pitfalls that are common to most casual traders!

Beware of the green-eyed monster that is a hydra with two heads: jealousy and greed. In the case of buying stocks, it is often a case of "monkey see, monkey do, I wanna piece of that banana too." Sometimes with stock trading, people feel as if they have to keep up with the Jones's when someone begins to do well. Chances are good that if you buy anywhere but near the bottom of a hot stock's value, you probably won't make money.

If your friend has made a ton of money on Company X, it won't do you any good to get in near the top of the stock's value bubble. At that point the stock's price is overvalued and it is bound to drop: your friend still made a lot of money, but you who bought while the price was in the penthouse suite of its value, stand to lose big time. Buy low, sell high. Buy low, sell high. Say it over and over again to yourself, and resist the urge to get greedy when someone other than you got in at the right time.

Don't micromanage every single stock you own: it will lead to fear. Experienced investors know that owning a stock means owning it for the long haul. You can't be swayed and affected by every single market drop that comes along. Fear leads to the temptation to cut losses when a stock drops and try something else: it doesn't work. An experienced investor will buy more of a promising stock when its price is low, and not dump what he already has.

Similarly, fear leads people to not invest at all when the stock market is low: but this is also a mistake. If you have the money and the know-how, a bear market is a great time to find bargains which will pay off big time down the road. If you wait too long, you may lose out on a lot of great opportunities.

Make a conscious decision to remain in the market over a period of several decades, and resist the temptation to jump ship every time a stock you own experiences the normal downs.