Eight mistakes of the first year
· 2 min · beginner
Automated material · TradeAlmanac editorial deskPrepared by a language model from our stored data and checked by an editor.
Beginners' mistakes are remarkably uniform and almost never concern company analysis. They concern behaviour.
Too many trades
Every trade costs a commission and a spread, and frequent trading almost never improves the result. Moving from once a month to once a day multiplies costs many times over and does nothing for returns.
An oversized first position
The experience of sitting through a drawdown only arrives with your own money. Starting at full size means testing your resilience in the most expensive way available.
No reserve outside the market
Covered separately: A reserve outside the market: why it matters more than picking securities.
Buying because it is rising
The security that rose most this month usually came to your attention for exactly that reason. "It is already rising" is not analysis — see Fear of missing out: why people buy at the highs.
Averaging down without a reason
Adding to a security that fell is justified when the business has not changed and the position was always planned in stages. Adding in order to "bring the average price down" is increasing the stake on a hypothesis that is already losing.
Judging by the price of one share
A share at a hundred roubles is not cheaper than one at a thousand. Why: Why the price of one share says nothing about the company.
Ignoring taxes and reliefs
Tax is an investor's largest cost, and the reliefs are structured so that the decision has to be made in advance: Long-term ownership relief: paying no tax without arranging anything in advance.
Keeping no record of the reasoning
Six months later nobody remembers why they bought. Without a record it is impossible to tell a good decision from good luck, and no learning takes place.
Prepared by a language model from our stored data and checked by an editor.
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