The biggest reason for loss in stock market if not applying basic principles while you invest in stock market:
- No Risk Management Strategy
- Not Checking Fundamental for the company (this is core while investing for long term)
- No time diversification. For example if you have to invest 20,000 in a company, you should buy shares in 4-5 intervals. I would first invest 5000 see how’s the price moving, based on a behavior of that stock, I would invest remaining amount.
- Speculation: Gambling in bear scripts like infibeam or Pcj, catching the falling knife.
- No diversification in portfolio, even sir Rakesh Jhunjhunwala has lot diversified his portfolio in different categories and different scripts. Your investment should be allocated in some really good companies and as warran buffet says, don’t put all your eggs in one basket.
- Investing huge amount in penny stocks thinking it will be rocket in a few years; agree Rakesh Jhunjhunvala’s titan went from 2 to 1000 but it was a brand and is a brand. Not all cheap stocks are good to buy.
- Using all your capital at once to buy stocks and keeping no capital in hands to average stock price when in correction.
You should only average the stock if it has corrected more than 70% with good fundamental values otherwise should never do it and to do that you need to have cash in hand always.
If you are investing in stock market without proper knowledge, then it’s pure gambling which rarely gives you profit at the end.
A smart investor is the one who learns, analyse and then invest in stocks and sit tight to gain all the profit he could get for the decade.