In 2008, the housing bubble that made many people rich also broke the bank and triggered a financial crisis. In retrospect and before 2008, many investors would argue that the housing market presented good investment opportunities. It was only until the crisis hit when people realize that they were wrong. The biggest takeaway for us was to never fully rely on nor following blindly when investing. In this post, we will be sharing some common mistakes which people do when buying shares and how we can avoid them.

Groupthink effect lurks in the market

Ever wonder why some people always buy at the wrong time? The reason is simple, the combined sell volume is higher than the volume of buy orders at a particular price point. This is sometimes counter-intuitive especially when many people around seem to be agreeing with their estimates. Ultimately, it all boils down to the actual volume sold which will determine the price movements. As such, do not build your confidence upon others rooting for the price to go up or down because the quantity of “buy” trades does not beat actual “sell” volumes.

The learning point of the above is to calculate the time required for the rebound if support levels did not hold. (Do note that this does not apply to all trade situations). Check out the post on duration versus reward to get a better idea if you bought before it hit bottom.

Better to lose together than win alone?

Many people would rather lose with their trading peers than win alone. Besides it being a thought-provoking statement, it actually says a lot about human nature and self-doubt. To prevent this, we ought to own our decisions and therefore consequences of our actions as well. It might not work out so well in the beginning but with practice and experience, your analysis will improve over time. The truth of the matter is that the people who can influence your judgment are sometimes only peas in a pot. Rest assured that there are many more out there who will be with you or against you.

In the earlier years of my investing journey, I was often swayed by social media and even other analysts. That did not always work well for me because there are always conflicting judgments out there. As a result, many of my trades were thus based on emotions rather than actual objectivity. This led to poor yields and sometimes bad losses.

Reminder: There are only 2 directions

Traders or investors, your stock prices can only go in two directions. However, there will be numerous analysts writing chunks of research to point you to either of those directions. In the end, there will always be lucky guesses and unfortunate ones. Taking sides based on the number of people saying it will go up or down will not be significantly beneficial overtime. Therefore, if you want to hone your skills in investing, the only way would be the hard way where you stick to your own targets and punch in when it hits.

Closing thoughts

Many investors feel that articles on investments are always talking about market trends. While I do feel its positive to share perspectives, we must also constantly refresh ourselves on such basics. Resonating with other investors has proven to be a double-edged sword for many investors. So since there are only two directions, always stay objective and own your decisions.