8 Mistakes Investors make when buying long term stocks (Part 1)
These are the common mistakes
investors make, I have to admit that I have also fell victim into some
of these mistakes, thus I am writing this to spread awareness to my
followers to not make this common mistakes that many investors make. In
the future I will make a video on this to explain more in detail because
if I were to discuss this in words it would take a long time to read,
so look forward to it!
1) Buying a specific stock because someone else bought it or telling you to buy it
- Buying Apple because Warren Buffett bought it is a bad decision if you want to maximize your gains as he might make a mistake or a bad decision to buy it when it is really high and blindly putting in your money because someone else did is like gambling based on other people’s decision. You are sure to end up loosing more than what the other guy lost because that guy will always be first to enter and to exit from that stock.
- Buying Apple because Warren Buffett bought it is a bad decision if you want to maximize your gains as he might make a mistake or a bad decision to buy it when it is really high and blindly putting in your money because someone else did is like gambling based on other people’s decision. You are sure to end up loosing more than what the other guy lost because that guy will always be first to enter and to exit from that stock.
2) Just buying any stock and just hold it long term
- Not even looking at the stock, understanding and analysing that stock’s profitability can be lethal eventhough that stock or most of the stocks go up in the long run. Just the though that looking at the stock it has a 10 years uptrend doesn’t mean that the stock will continue to go up another 10 years or more. Not all stocks go up in the long term especially those stocks that have a lot of hype around it but their earnings doesn’t justify their growth. Eventually that stock will pop and massive people will start selling it and you will be stuck in that stock for a really long time.
- Not even looking at the stock, understanding and analysing that stock’s profitability can be lethal eventhough that stock or most of the stocks go up in the long run. Just the though that looking at the stock it has a 10 years uptrend doesn’t mean that the stock will continue to go up another 10 years or more. Not all stocks go up in the long term especially those stocks that have a lot of hype around it but their earnings doesn’t justify their growth. Eventually that stock will pop and massive people will start selling it and you will be stuck in that stock for a really long time.
3) Buying the stock because the P/E is low or the stock price is cheap to buy
- Price over earnings isn’t a good indicator for us to conclude whether the stock is cheap or not. We need to compare it with its peers and also know its intrinsic value to decide if its cheap or not. Some stocks may have low P/E but actually it is still overvalued, same goes for the price of the stock, it may be few cents only but in fact it might still be overvalued, it could be due to splitting of shares or rights issue, etc. On the other side we can see that the stock is so expensive, it can even cost RM100++ but if we calculate the intrinsic value of the stock we can deduce that the stock is actually very cheap.
- Price over earnings isn’t a good indicator for us to conclude whether the stock is cheap or not. We need to compare it with its peers and also know its intrinsic value to decide if its cheap or not. Some stocks may have low P/E but actually it is still overvalued, same goes for the price of the stock, it may be few cents only but in fact it might still be overvalued, it could be due to splitting of shares or rights issue, etc. On the other side we can see that the stock is so expensive, it can even cost RM100++ but if we calculate the intrinsic value of the stock we can deduce that the stock is actually very cheap.
4) Buying the stock because of the attractive Dividend Yield
- Some stocks may have 5% or 8% or some even 20% DY like the recent AirAsia dividend, but will you actually get the return you are looking for by just buying in a stock just because they are offering an attractive dividend yield? Hell NO! Some are just tricks that the company say they want to reward shareholders but what they are really after is our hard earned cash because the moment we put our money in and they released the dividend, the stock price will fall based on how much dividend they are giving. Don’t be fooled by it, they might also give more dividend per share but in the bottom line they are using up more cash than they have and giving more than 100% of their payout ratio which they sometimes take in more debts such as loans to pretend that they have cash to reward shareholders but in the end this company is loosing money in the bottom line.
- Some stocks may have 5% or 8% or some even 20% DY like the recent AirAsia dividend, but will you actually get the return you are looking for by just buying in a stock just because they are offering an attractive dividend yield? Hell NO! Some are just tricks that the company say they want to reward shareholders but what they are really after is our hard earned cash because the moment we put our money in and they released the dividend, the stock price will fall based on how much dividend they are giving. Don’t be fooled by it, they might also give more dividend per share but in the bottom line they are using up more cash than they have and giving more than 100% of their payout ratio which they sometimes take in more debts such as loans to pretend that they have cash to reward shareholders but in the end this company is loosing money in the bottom line.
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Disclaimer:
All the views and opinions expressed in our post are for education and informational purposes only and it should not be considered as professional financial investment advices or buy/sell recommendations. We strongly encourage you to do your own research and take independent financial advice from a professional before you proceed to invest.
We make no representations as to the accuracy, completeness, correctness, suitability, or validity of any information on our Facebook Page/Group and will not be liable for any errors, omissions, or delay in this information or any losses and damages arising from its display or usage. All users should read the posts and analysis the information at their own risk and we shall not be held liable for any losses and damages.
https://klse.i3investor.com/blogs/12stocktalk/211540.jsp
All the views and opinions expressed in our post are for education and informational purposes only and it should not be considered as professional financial investment advices or buy/sell recommendations. We strongly encourage you to do your own research and take independent financial advice from a professional before you proceed to invest.
We make no representations as to the accuracy, completeness, correctness, suitability, or validity of any information on our Facebook Page/Group and will not be liable for any errors, omissions, or delay in this information or any losses and damages arising from its display or usage. All users should read the posts and analysis the information at their own risk and we shall not be held liable for any losses and damages.
https://klse.i3investor.com/blogs/12stocktalk/211540.jsp
