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Three things about investing that people get wrong

Investing can seem like a complex activity: there are many types of products, companies, brokers, stock options, and more. How can you start doing it correctly? This is a question that many new investors have, and often have difficulty answering.

Besides, these new investors also make common mistakes, which could have been prevented. In this article, we will look at three things that people tend to get wrong when it comes to investing.

Focus on quick gains and unrealized value

When people start to invest, they tend to look at the short-term.

How are my stocks doing daily? Comparing day-to-day and month-to-month. Next to that, they have a laser focus on the unrealized value. They tend to be disappointed when a stock has a lower value than the purchasing price.

This approach can be dangerous: over long periods, the stock can appreciate. Maybe you will also receive dividends.

There are many things you should take into account when looking at the future value of a stock. Try to think long-term: will this downward trend continue? Is it related to the overall macroeconomic climate, or is it industry or company related?

Make emotional decisions

Just like in business, it is best if you turn off your emotions. When you are high in emotions, you will make decisions that are irrational and often do not lead to the best results. For example, when a stock goes down, try to be objective.

Will this continue? What is the “real” impact? Sometimes “bad” news can be a good opportunity to buy additional stock, while other investors are reacting emotionally to the news.

Buy random single stocks

Ask a new investor about their portfolio and they can easily provide you with a long list of individual stock holdings.

Ranging from Alphabet to Exxon, Best Buy, Tesla, Uber, and Johnson & Johnson. This is typically what we would describe as investing without a strategy. Simply buying individual stocks is not a sustainable option for the long term.

Will you be reading about all these industries regularly? Will you read all their financial statements?

It is best to go for a fund that covers all industries, or specific ones.

If there is an industry that you have knowledge about or are interested in, try to buy individual stocks in that industry only. This will help you to leverage your market knowledge, while you minimize the potential risks in other markets you have limited knowledge of.

There are many funds available that allow you to spread your investments such as the S&P 500, MSCi World, and Vanguard World ETF.

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