Not selling a losing stock: Because of psychological reason, people holding a losing stock for log term without selling. This is because they are not ready to admit the lose of money. Some people thinking that they are can’t be wrong about their stock or seduced by hope and greed. Others will convince themselves the stock will come back one day or are afraid to throw the stock because of affection.To get out from this situation, you have to plan from the day when you are buying the first stock. You have to select the company properly and if that is a bear phase, you can wait till the market bounce back. If that is a bull phase and the price of your stock is coming down, then you have to take decision till what percentage you can wait and sell the stock. This decision is important to you to throw your losing stock in a bull phase.
You let your winning stocks turn into losers.
A perfect investor will always study about his company and always aware about the price limitation to sell the stock. Suppose, you had bought a stock and decided to sell the stock once it is achieving 50%. During the bull phase, the stock touched 50% and instead of selling the stock, you decided to hold the same for some more time because of greed and the stock falling by soon bear phase. Should not allow this. Once if you decide, should keep that point and sell the stock if it is reaching your desired point.
You get too emotional about your stock picks.
Inability to control the emotions are the major reason most of the investors falling in the wrong decision about stock. Emotions will lead him to do the wrong things always and finally he will be loser. People flooded with emotions will compel to make wrong decisions. Becoming more emotional about your investments is a clue that you could lose money.
Overconfidence is another emotional problem and it is happening with someone who tasted a success in the stock market previously. Some self confidence is necessary if you are going to invest but ego and overconfidence are dangerous sign in the investment world. Thinking and acting as a genius will lead someone to the utmost lose. The most profitable traders and investors are unemotional about the stocks they buy. They don’t rely on fear, greed or hope when they make trading decisions. They look only the technical and fundamental data. Famous trader Jesse Livermore once said : “People are hopeful when they should be afraid and afraid when they should be hopeful”. This words clearly indicating that Jesse was well aware about the short term psychologies of market. In the word of Morgan Feedman in a movie Shawshank Redemption once said “Hope is a dangerous thing”.
Putting all your eggs in a single basket: this is an another big mistakes committing by investors. Investing the entire Amount to a one or two companies without having a proper diversification. Although, diversification limits your upside gain but it protect your investments does badly.
If you can’t afford to buy more than one or two stocks, then options are to buy mutual funds, especially index funds, which allow you to buy entire market for a fraction of what it would cost if you bought each stock in the index. Or, you can use the help of a certified investment advisor to manage your portfolio.Still you want to buy only one or two stocks with your money, then consider to buy conservative companies with low P/E ratio.
Unable to be disciplined and flexible: this is the main reason most people losing their money in the market. If you are disciplined with a strategy, plan and rules, this always worked for successful investor. This required willpower and courage to stick with your strategy and obey rules.
You also required to balance this discipline with a healthy flexibility. Some investors are so rigidly disciplined about sticking with their stock strategy that they did not react when the market and the stocks turned against them. In the name of discipline, many investors went down with the sinking ship. Discipline is essential but you must be realistic enough to realize that you could be wrong. For every rules and strategy, there are exceptions. You have to be flexible enough to change your rules, your strategy, your plan especially if you are losing money.