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17 July, 2019 00:00 00 AM

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Stock market mistakes can cost you financially

While constantly moving money around is costly and ill advised, a set it and forget it strategy can be just as damaging
Harun Or Rashid
Stock market mistakes can cost you financially

In order to be successful, an investor has to understand not just finance, accounting and economics, but also physiology. According to the experts, investors shouldn’t make their decisions on emotions, the timing of the market, daily trends, or a non-diversified portfolio.

Investing can be a tricky business; one mistake can cost you financially in the long run. Investing in stocks market remains a good option with good profit margins. But sometimes investors frequently fail and face heavy losses in the stocks market. The stock market is risky and one has to take analytical informed decisions to generate good yields. Profit or loss in the stock market largely depends upon the ability to make good decisions and choose the right stocks at the right time.

Repeatedly people make mistakes and subsequently fail in making a profit. Such mistakes are to be avoided in order to succeed and in order to avoid them; one has to understand the main reasons that cause a failure. Lack of self-control emotionally is why most people lose money in the stock market. People who have failed will often try to blame the market when in reality, most investment failures fall directly on the decision of investors also. Many of us expecting returns on short run basis and also absence of efficient market hypothesis can make the stock market more deteriorate. Notable, stocks market in Bangladesh belongs to weak-form efficiency i.e. implies that prices reflect all relevant information about past price movements and their implications not publically available knowledge relatively semi-strong and strong-form of efficient market.

Earlier, we have seen bubble and bust episode in Dhaka Stock Exchange in 1996 fiasco the indices reached the highest level in its history in November 1996 and eventually crashed which was recorded of 337 percent on November 1996 compared to the index of December 1995. Similar increases were happened in 2010. At the beginning of 2009 the stock index in Dhaka Stock Exchange was at 2808. Though the bubble and bust episode of 1996 and 2010 were not the same but the reasons of the both fiasco commonly were exuberant demand, acceleration in money and margin lending, narrow market leadership, structural weakness and inadequate financial knowledge of individual investors and speculation.

Putting too many eggs in a basket; Refers to investing in various stocks and hoping that each performs according to your expectations. Spreading money different portfolios ensures that it is held up in various investments that have the potential for huge returns. Investors concentrated positions because they are really focused on the short term return.

Often investors hope that by focusing on one stock or sector they can maximize their return if there is an explosion. But often those positions don’t move the way you want them to and a lack, or complete absence, of diversification can be painful for performance.

Not minding the market; Practice makes a man perfect.  As true in investing as reading or addition, people who don’t exercise their investing strength are in danger of falling behind.

While constantly moving money around is costly and ill advised, a set it and forget it strategy can be just as damaging. If you have 1,500 total shares to buy, you don’t need to buy them all at once. Maybe you buy 500 then wait and see what happens. This is something the professional investor uses all the time but it takes a while for the average investor to get comfortable thinking about getting in and getting out in partials, rather than as a full stock. Of course there is risk that the stock will go straight up, leaving you with foregone profit on the additional 1,000 shares.

Not getting the right education; Absence of right education can cost you financially while investing in stock markets. Learning how stocks market works can take several years. You have to understand what’s going on or else you’ll be burned down in the game. There are millions of free resources available online for you to study. Make use of it. Understand how the stocks market works before diving straight into it. It’s very easy to get the education yet a lot of people are not willing to do it.

Using too much leverage; Using leverage can be an advantage if you know how to use it wisely. It is advisable for beginners not to use leverage during their starting phase. It’s very tempting to use it as the gains can be amplified but also keep in mind that if things go awkwardly, losses will be amplified too. Leverage, if used incorrectly can get you into huge debts and you should only consider it if you have a proper trading or investing strategy.

The stock market is not a place to gamble; Remember, many people enter the stock market to make a gamble. They think that it is a casino and it depends on pure luck if you will make any money.

Stock market is not a place to gamble and gamblers always lose in the long run. Investing or trading is an art and it takes time to get the results. One who waits wins this game i.e. long run investments can make the stocks market great again.

Brokerage with high commission; A high brokerage commission can cost you financially while investing in stock markets. If you invest $100 per month and pays $10 in commission, you are already down by 10% even before you start. So choose your brokers wisely. Also, keep in mind to go with reputed brokers that are well regulated by the monetary authorities.

In conclusion, the regulatory body should introduce some monitoring systems to protect the price manipulations of the share. Provisions should be made to provide all the financial data to the investors so that they can get a proper idea about the company.

The market should be free from fake certificates. Some incentives package for the investors like getting financing at a low cost has to be offered to bring back the investors in the market. Most importantly, publically available information can augment share market a great again.  

The writer is a certified

finance specialist

 

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Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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