What is the single biggest mistake people make in picking stocks?

Mark Katigbak thru Quora

There are bar girls - stocks that are pretty to look at, charts are pretty to look at, and momentum is building as more people enter to join the scene only to plunge down once people realize that there’s really no fundamentals.

Short term traders would enjoy trading these stocks as they enjoy going from one hunt to the next.

There are top models - blue chip companies, stocks that everybody wants to have and almost everyone has. Most people would have this but only people who are wealthy would definitely benefit from it. They are stable but expensive. Proven to stand the test of time. Everybody adores it but only a few people can truly savor it.

Then, there are these legal wife material girls - I don’t know why he calls them legal. Maybe would ask him some other day. But these are the stocks that people barely notice but actually have a lot of potential. They have solid fundamentals but they’re still just in the process of blooming. These are what investors seek as they want to keep them from beginning till the end of time knowing that they’ll make a huge profit.

So what’s the best stock among the three?

Neither one. The stock that’s the best is the one that makes you profit. The biggest mistake you can make does not have anything to do with the stock but the type of trader that you are.

ANOTHER WRITE UP

Mike Perkas

Do you have a personality that’s best for short term trading, or are you already wealthy that you just want stability, or do you enjoy investing and waiting till the time is right to harvest?

My single biggest mistake is that I got influenced by short term traders to adopt their strategy when my personality is more suited to investing.

The biggest, single mistake the average investor makes in picking stocks, is not in predicting how a stock will react in a market, but in how they themselves will react in the market, regardless of how their stock performs.

When you’re investing your hard earned money into the markets, you are also unavoidably investing a portion of emotion, an emotion called hope.

This hope is a part of who we are. It is embedded in our human nature.

When you pick a stock, you inadvertently place hope into your research. You want to be right. You don’t want to be wrong. You don’t want to look like a fool being wrong. You need to be right. You hope, hope that your efforts will be rewarded.

You come home from work, tired, exhausted, and you just want to put your money into a place where it will (hopefully) flourish. This money you work hard to save, you just want this little money heaven place where you can let your money free so that it can grow. You don’t know where it is. You don’t know how it works. But you hear everyone talk about this magical place called the stock market, where money almost miraculously seems to grow on trees, and just want to do what everyone else does.

What happens when we when we’re tired and overwhelmed? What happens when a father or mother of three, tries to fit their stock analysis, in with their long and strenuous hour work week, with their kids’ homework, after cooking dinner, from just getting their car fixed at the mechanic, from getting groceries, after finding that plumber who’s going to end up charging $200 for not even an hour’s worth of work?

They just want to get their project finished and over with. They just want to find that damn little piece of money heaven, where they can drop off their money where it can go run and play free in those warm, rosey money heaven fields where they can roll around and grow into bigger happier rolls of money.

Same thing happens with young investors who are aggressively prospecting for those money fields, blinded by the reassurance that the market is “kinda like a casino”, and that they just need a somewhat decent looking company in order to “make it big”.

Same thing even happens with investors and traders with some experience under their belt. They miscalculate and underestimate the hope they place into their investments/trades.

*Trades and investments are very different things.

Where prices affect the value of our investments, fear and greed influence our hope. Fear of being wrong, makes us jump out irrationally. Greed makes us old up, irrationally.

It’s these miscalculations and underestimations of our fluctuations in our rationality, stemming from our vested hope which is manipulated by our impulsive, capricious behavior, that is the single, biggest mistake investors make.

Learn to manage this hope, and understand it (example: avoid investing too much of your portfolio into any one given investment, because by doing that, you are investing too much hope, which will easily manipulate you through the fear of loss, making you settle for large losses, or small gains).

Get hobbies. Find stress relieving activities. Play sports, do yoga, do a hobby you enjoy, play with your kids if you have them, spend time with your family or friends, and do things that make you appreciative for life in general, so that this external positivity can preserve your rational mindset, which must ultimately weather anything that tries to offset it.

Don’t underestimate your emotions. It’s THE biggest mistake investors make.