A Simple Checklist of Reasons Why Investing in Stock Market May Not Work for You
Investments carry some degree of risk, even conservative ones. If you have one check for any of the following reasons, then avoid investing in stocks, for now.
1. Limited Fund/ Resources
Stock prices are quite risky and volatile. If you think that your cash on hand might be needed in less than a year, then refrain from buying shares. At any given time, you may lose a significant amount of money if the market crashes. Most often, investors will strategically make other investments to minimize their exposure to risk. Buying shares from other companies will spread out the risk against potential losses. This can only be possible if one has available funds that he or she is willing to lose.
2. Insufficient knowledge and skills
Warren Buffet once said, “Never invest in a business you cannot understand.” At one time, he missed his opportunity with Google and Amazon because he didn’t understand how Google would produce a profitable and durable competitive advantage over its peers. Buffet stressed that he had plenty of time to ask questions or anything of the sort and educate himself, but he blew it.
So if the main reason why you make a decision to invest in stocks is that you are influenced by an acquaintance, then you are likely to fail. In fact, this is a common mistake that investors often commit. Many traders jump into the markets without the necessary training and education. This can lead to missed opportunities and costly mistakes.
3. Lack of Discipline
It is common knowledge to investors that the stock market cannot be timed. Without a proper strategic approach and patience, potential losses may be incurred due to panic and lack of discipline. Nick Murray (Simple Wealth, Inevitable Wealth, Jan. 2013) emphasized that “Wealth isn’t primarily determined by investment performance, but by investor behavior.” Growth naturally takes time and keeping one’s finances under control requires a good amount of discipline.
Buying stocks is a good potential investment. Nevertheless, as a general principle, one should not participate in something you do not know. Yes, it works for others because they have the resources and the skills. This does not mean though that you can never invest in the stock market. You can always make yourself qualify in the future
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