What are the Biggest Mistakes Beginners Make While Investing in Stocks?

By Rajesh Kumar - Personal Finance Writer

Stock market investing is looking very attractive these days, no? Especially after seeing how much money people are making in bull market. But let me tell you one thing - for every success story you are hearing, there are 10 people who have lost their hard earned money because of some silly mistakes.

I have been writing about finance for last 8 years and I have seen same mistakes happening again and again. Today I will share with you the biggest blunders that new investors are doing, so that you can avoid them and save your money.

1. Not Doing Proper Research Before Buying

This is the number one mistake I am seeing everywhere. People are just hearing some stock name from friend or watching on TV and immediately buying it. No research, no understanding of company fundamentals, nothing!

Just last month, my neighbor uncle bought 100 shares of some small cap company because his broker said "it will double in 3 months". He didn't even know what business that company is doing. Now the stock is down 40% and he is blaming the market.

What you should do instead: Always research the company properly. Check their financial statements, understand their business model, see their profit margins, debt levels, and growth prospects. Use tools like MoneyControl or Screener.in to analyze companies.

2. Putting All Money in One or Two Stocks

Many beginners are thinking they are very smart and can pick the next Reliance or TCS. So they put 50-60% of their money in just one stock. This is like putting all eggs in one basket - very dangerous!

Even big investors like Warren Buffett are saying diversification is important for small investors. If that one stock goes down badly, your entire portfolio will suffer.

Better approach: Spread your money across at least 8-10 different stocks from different sectors. Some technology, some banking, some FMCG, some pharma etc. This way if one sector is not performing, others can balance it out.

3. Buying High and Selling Low (Emotional Trading)

This is probably the most expensive mistake. When stock prices are going up and everyone is making money, beginners get FOMO (fear of missing out) and start buying at high prices. But when market crashes and stocks become cheap, they panic and sell everything at loss.

I remember during March 2020 corona crash, many new investors sold their stocks at 30-40% loss. But those who held on or bought more during crash, they recovered all losses within 6 months.

How to avoid this: Make a plan and stick to it. Decide your target price for buying and selling before you invest. Don't let emotions control your decisions. Market will always go up and down - this is normal.

4. Not Having Emergency Fund Before Investing

This is very basic thing but many people are ignoring it. They are putting all their savings in stock market without keeping any emergency money.

What happens then? When some emergency comes - medical expense, job loss, family function - they have to sell their stocks at whatever price is available. Sometimes at big loss also.

Smart approach: Keep 6-12 months of expenses as emergency fund in savings account or FD. Only invest the extra money in stocks. This way you will never be forced to sell your investments at wrong time.

5. Following Tips from Social Media and WhatsApp Groups

Nowadays everyone is expert on Twitter, Instagram, and WhatsApp. People are sharing "hot tips" and "multibagger recommendations" without any proper analysis. Beginners are blindly following these tips and losing money.

Remember, if someone really knows which stock will give 500% returns, why will they share it for free on social media? They would be investing their own money and becoming rich quietly.

Stay away from: Stock tips on WhatsApp groups, telegram channels, YouTube videos promising quick money, and social media influencers who are just trying to increase their followers.

6. Trying to Time the Market Perfectly

Many beginners are trying to buy at exact bottom and sell at exact top. They keep waiting for "perfect time" to enter market. But perfect time never comes and they keep missing good opportunities.

Even experienced fund managers cannot time the market perfectly. So how can beginners do it?

Better strategy: Use SIP (Systematic Investment Plan) approach. Invest same amount every month regardless of market conditions. This way you will average out your buying price over time.

7. Ignoring Company's Debt Levels

New investors are only looking at profit numbers but not checking how much debt company is having. High debt can be very dangerous, especially during tough economic times.

Companies with too much debt may struggle to pay interest and may even go bankrupt. Always check debt-to-equity ratio and interest coverage ratio before investing.

8. Not Having Long-term Vision

Stock market is not lottery where you can become rich overnight. But many beginners are expecting 50-100% returns in few months. When they don't get quick results, they become impatient and start jumping from one stock to another.

Wealth creation in stock market takes time. Companies like Infosys, HDFC Bank, Asian Paints have given amazing returns to investors, but it took many years.

Have patience: Think like you are buying part of business, not just trading pieces of paper. Good companies will reward patient investors over long term.

9. Not Learning from Mistakes

Everyone makes mistakes in stock market - even Warren Buffett has made mistakes. But difference between successful investors and losers is that successful people learn from their mistakes and don't repeat them.

Keep a investment diary. Write down why you bought particular stock, what was your expectation, and what actually happened. Review your decisions regularly and learn from them.

10. Borrowing Money to Invest in Stocks

This is most dangerous mistake. Some beginners are taking personal loans or using credit cards to invest in stocks, thinking they can pay back from profits.

Stock market doesn't guarantee profits. What if your stocks go down? You will be stuck with loan EMIs and losses both. Never invest borrowed money in equity markets.

Final Words

Stock market can create lot of wealth over long term, but only if you avoid these common mistakes. Start small, learn continuously, and be patient. Don't try to become rich quickly - slow and steady wins the race.

Remember, even if you make some mistakes initially, don't get discouraged. Learn from them and keep improving your investment skills. With time and experience, you will become better investor.

Happy investing!