When you go to the gym for the first day you do not spend hours lifting heavy weights. Even if you want to build a body by lifting heavy weights it will not happen on the first day.
There is a process that you need to follow to gradually get into weightlifting. In case you do not follow the process, chances are that you will be in pain more than you gain.
You need to avoid certain mistakes when you start your stock investing.
Small cap investing
A lot of people think they are riding on the next Page Industries or Asian Paints while investing in small companies.
They do not realise that the chances of them finding great companies are pretty low. Only a handful of companies move from small cap to mid-cap and even fewer will move from mid-cap to large cap.
It's different this time
Most of the booms and busts are very similar in design. The underlying reason could be different but patterns replicate the past. You have to be a student of market history to understand the market’s future.
Do not confuse product usage as an investment case
Never assume your personal experience with overall market experience. It may or may not turn out true.
Selling when the market is going down
Never associate a fall in the price of your company as any indication of bad investment. Often a general market downturn can make the price of the company fall. Interestingly it is a good idea to allocate more capital to your evaluated companies when they are going down.
Timing the market
A lot of people use systematic investment plans of mutual funds to allocate in the markets. It is one of the smartest ways to allocate your capital and avoids timing the market.
No strategy consistently tells you when to be in the market and when to be out of the market and those who tell you probably they are trying to sell you something.
Ignoring the price
In the market, this is called BAAP investing which is Buy At Any Price investing. It is never a good idea to not consider the price that you are paying for your investment.
Even the best of businesses require you to ensure the entry price provides a certain margin of safety. If the quality of business is low you would need a bigger margin of safety
EPS focus
A lot of trading mindset people focus on quarterly earnings. They invest or sell at the time of results.
There is no harm in checking quarterly results to ensure that your thesis is going right but there is a problem if you continue to act on quarterly results. Management has a lot of leeway to show numbers based on their financial assumptions.
If you avoid these mistakes you will be better off in comparison with other investors in the market. You must train yourself to enjoy the process of investing rather than the outcome.
The idea of investing is return, but the investment journey is all about reflection and learning.