In this post, we’re going to talk about the 5 dumbest reasons why people get into a stock.
Many people get into stocks for a lot of different reasons that are not always the smartest financial decision that they can make.
We’re going to check these reasons, and I’ll let you know my thoughts and opinions on the appropriate way of thinking about things.
Reason #1 – They are Not Invested
If you’re not invested, it comes along with the fear of missing out. If you’re missing out, you feel like you’re missing something important. That’s something like when your friends have a specific smartphone, and you have a dumb phone. The first impulse is to think about having that phone.
The same thing here happens. Let’s say the news talks about the percentages that the stocks are going up, and if you’re not invested, you’re missing out. You want to get in it, and then you buy the stock, and you get into the wrong stock. And it starts to go against you. That’s one of the first reasons.
Reason #2 – You Got a Tip about Stocks
If you got a tip from a friend, a buddy, or TV, then you get into the stock. That’s not a good and smart idea.
That’s because these things are probably different than yours:
- you have a different risk profile
- your risk tolerance is different
- you have a different amount of money
- age of life
All these factors play a role in how you should be investing and diversifying — making sure that you protect your nest egg. If you got a tip from somebody to trade that stock, my advice is to stay away.
Anytime somebody gives me a tip or tells me to look at something I already make sure I don’t trade that thing. That’s what I do unless already I know the stock very well in-depth, and I already am trading it fairly actively.
Reason #3 – Love & Trading Stocks
Maybe you love a certain product or a phone. If you love something about the company, that’s a problem. That’s because you get too emotional into it. You’re too involved. Love is blind — the same thing in the market.
The thing is that you like a certain product or the company too much to see clearly. You get it because you like it, but it’s not necessarily because the business is doing well or the business is growing. And people buy stocks, and they profit from stocks because they grow and profit. But if you’re getting it for love and if it’s not profitable, you’re not going to make a good return on your investment.
The whole point is to get a return on your investment. Doing it for love is another bad reason to get into a stock.
Reason #4 – Quick Money & Trading Stocks
Everybody wants fast money. They wanted money yesterday, and they want a money microwave style.
Most people want to put $5 in a microwave, and to get back $50. If you want to make money fast, the stock market is not the place. It’s like any other job. It takes time, energy, and it takes a lot of learning behind it.
In our society these days we constantly flip the channels in our radio to find the next thing. There’s mental stimulation. Nobody has the energy to watch a two-hour YouTube video as I used to make in the past. It’s very tough. Nowadays, people want five-minute videos. They want them quick. A lot of people don’t want to read a 300-page book. They want a ten-page report.
You don’t want to do a smoking BBQ session anymore. You want the microwave. And that becomes a problem because the stock market is not quick money. Sometimes you can make some quick money I will say that. But a lot of times it’s a lot of hard work. It still takes time unless, of course, your risk tolerance is extreme. But then you’ll have a lot of whipsaw in your profitability and losses.
If you get into a stock because you want fast money, it may work for a little bit, but eventually, it’ll come back to bite you. Be careful.
Reason #5 – Stocks are Cheap
A stock that used to be $100 is now $5. It’s cheap. So get into it to good value. That’s again not always the smartest approach.
Think about this when you go in, and you buy anything at the store. If you buy a phone for $10, it’s probably cheap for a reason. If it’s a $10 computer, it’s probably cheap for a reason. If you were to buy my laptop and I sold it to you for $50, it’s probably got a cracked screen. Probably that laptop is not working right. It’s perhaps not even starting, and the battery might be missing. But if you spend maybe $700 all of a sudden you might get some better value out of it.
That’s because it’s got some value attached to it. It’s working, it’s functioning, and it’s fast. People buy stocks because they’re cheap. And when they do that, remember, it’s cheap for a reason. Don’t buy a stock just because it’s got a low dollar for the share price on it. The big boys already know. Instead, look for what’s the value behind it what’s the potential growth in front. A lot of times, stocks that are cheap, penny stocks, or stocks that are down in the gutter they’re going to be in the gutter for years.
Can they break out of that? Yes, they can break out of that, but it takes a lot of time, energy, and a lot of money. Just because bigger companies take time to turn and rollover. Just like the Titanic, they take time to rotate and get to the next stage. Sometimes that takes years. It doesn’t mean they can’t do it. It just takes a while.
Don’t get it just because it’s cheap. They’re usually cheap for a reason.
I hope you found these things helpful and I hope you’re not buying stocks because of these reasons. But if you are, be very careful.
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