There is an old saying when it comes to investing “when everybody’s getting into the market and the shoeshine boy is giving stock tips – then it’s time to sell.”
The reason is, once a bunch of people get in the market expecting a quick return on their money, and they start losing money, it can cause a stampede of a bunch of people selling their stocks before they lose more money! Therefore it is best to stick with a plan! Here are 3 Investing traps to avoid...
A lot of gurus will say they can guarantee you 5-10% daily returns on your money if you invest through them or with their strategy… please keep in mind if they could actually do this, they wouldn’t need to sell you their courses. They would be the best investor to ever exist by a large margin and would be able to get a job at any investment company they wanted. Don’t waste your money on these get rich quick scams!
I can already feel a few of the readers seeing this and lighting torches and sharpening their pitchforks… let me explain!
Penny stocks are not all scams, in fact most on the stock exchange are very legitimate businesses. The problem isn’t the company at all in fact, it is people who act like they know more than everyone else about the stock.
Online you will often see people talking about why this penny stock is going to X price by next month and tell you why they think it will do that… a lot of times it does not go to that price. The price of the stock DOES often go up though. See the thing with penny stocks is, they have less people buying and selling the stock at any given moment than say Apple stocks. This lower volume of buying and selling makes it significantly easier to manipulate the price.
Example. Person A buys the stock at 1 dollar, this person this proceeds to go online and talk about the stock saying it will go up to 10 because they know someone at the company who said amazon is announcing they are buying the company at 10 per share next Friday. A bunch of people see this and buy the stock, causing its price to raise up. Person A sells their stocks at $6 per share. Friday comes, and the stock crashes to 60 cents. This may seem unlikely but it happens way more often than you realize. There is money to be made in legitimate penny stocks, but wait until you are more experienced in investing before dabbling in them.
Waiting for a crash
This was mentioned earlier, but don’t time the market. Sure you could be right when you say the market is going to crash 20% in the next 5 years, but lets say you wait five years and lo and behold, it crashes 20%! Expect in those 5 years the market went up 50% and you lost out on 30% gains. This is the best case scenario though, what if it doesn’t crash, the market keeps climbing and you refuse to invest because you are scared as soon as you put your money in it will crash.
Don’t try to time it, the market is a hive mind of millions of people pushing and pulling. It usually isn’t worth trying to predict large events like a crash.