Mistakes are mistakes if not done repeatedly. Once done repeatedly, they are offenses. For a young investor, there are mistakes that they make as beginners. However, blaming the young investors for their first mistakes is not right. There are two people or rather portions of their life that should be blamed. One is parents- because parents are the first authority over children. All of us learn about the basics of finances from our parents. The basics of money management, budgeting, investing, and saving always come from parents. If the parents fail to practice Finance101 within their families, children are not expected to know anything about personal finance.
The second is educational institutions. Robert Kiyosaki discusses this extensively in his book Rich Dad Poor Dad. Schools teach us to be slaves to the corporate world. We are taught to study well so that we can work for someone else. We are never taught to invest, stock markets, mutual funds, FD, risk management, savings, business, case studies on startups. All of this done by paying another fortune in MBA schools and colleges, which practically makes no sense.
Hence, young investors always start off on the wrong foot with their investment journey. Hence, because their knowledge or urge to invest comes from social media and YouTube, it is often determined by greed, impatience and lack of right knowledge.
Here are some of the mistakes that every young investor does.
Confusing Investing and Trading
The problem over here is this – We learn about investing but do trading instead, or vice versa. Trading and investing are both two different animals. you cannot feed the same food to both of them. Let’s take an example. You buy one stock ABC Ltd out of the 100 shares that they have. This means that you are 1/100th owner of ABC Ltd simply because you are a shareholder. Hence, you would invest in a particular company only if you believe in the company, and have done enough research, like the company’s plans, etc. You would endeavor to grow with the company. Hence, you invest in the company.
Trading would be different. Trading would require you to have the mindset of a `”kirane-wala”. you buy a company’s share at a certain price and sell them at a higher price after a few days or in the same day.
The mistake that young investors make is to have the attitude of a trader. Patience is key when it comes to investing. even when the company isn’t generating profits and there is huge selling of the company’s shares, an investor will not leave that company. Does the MD or CEO of a company resign from the company when there is a loss or shares sell-off? No, then why should an investor?
Timing the market
Timing the market is wrong! It is wrong for two reasons. Firstly, an investor invests taking into horizon 5 years or more. Before 5 years, anything you save or invest can be your short-term goal in which no compounding is happening. Compounding happens after you cross the 15th or 18th-year mark. Hence, if NIFTY is today at 25000, where will the market be after 10 years? So is timing the market relevant?
The second reason why timing the market is wrong is because it never lets you enter the market. Let’s say you are at 25000 and you are waiting for the market to fall to 23000 and then you will invest. So you hold on to your investment. That 23000 comes after 2.5 years, and then you still think it will fall more because the market is at a correction phase. By the time you decide to invest market goes up to 24000 and on it goes. You could never enter the market for the last 2.5 years! The whole concept of timing the market is wrong! No one has and no one ever will be able to time the market correctly!
Starting Late
Well, this is a follow-up mistake to the previously mentioned mistake. When we spend too much time speculating the market, we start late. Go to Google and calculate the difference in return for a SIP of Rs 5000 with 14% Return for 15 years and 20 years. You will get your answer as to why starting late will cost you so much. No matter the amount, start early. There are mutual funds where you can do SIPs of Rs 500! What’s your excuse for starting late?
FOMO – Fear of missing out
There is a time for everything. In your twenties, you, a middle-class investor will not have 10 lacs to begin with. But the problem is you follow such investors or “fin-fluencers” on social media who already have built a 1cr portfolio. This is not even an apple-to-apple comparison! You too will build a 1cr portfolio if you simply keep investing over the years. Realize the power of compounding and just keep investing.
Well, these are some of the common and most made mistakes of newbie investor. So watchout, and try not to make these mistakes.
