Habits That Could Ruin Your Entire Portfolio

No image 5paisa Research Team

Last Updated: 11th December 2022 - 09:52 am

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Building up an equity portfolio for wealth creation by way of investing in stocks has become quite the norm these days. However, one requires knowledge and patience to make big money in the markets. Moreover, one must be disciplined or their bad habits could ruin the opportunity to make profits.

Here is a list of practices that could ruin your entire portfolio:

1) Underestimating The Power of Compounding

When investing their hard-earned money in the market, people often tend to miss out on the knowledge of compounding. The thing about compounding is that its effect is only visible after a few years. If an investor has invested an amount at 15% compound interest, then your capital would be eight times in 10 years and 16 times in 20 years. One can enjoy compounding if they invest with a long-term perspective in mind.

2) Ignoring Company Valuations

Before investing in a particular stock, it is essential to know about the company’s particulars such as its valuation, and its operating and financial costs, etc. Many investors tend to ignore this fact and invest blindly. Given the current market situation, it is better to consider all the critical points before investing. Markets never stick to the guidelines and are often overvalued or undervalued at times, but in the long run, they come back to their core principles.

3) Overstepping Your Boundaries

Most often, investors take the advice of their friends or family when investing instead of conducting proper research on the subject. Right now, the prospect of multi-bagger stocks  are on the circuit, and they are stocks that give over and above their cost; such stocks also shoot up if a high-profile investor enters the scene. All these seem like great reasons to invest in such shares, but that plunge should only be taken after proper research.

4) Stocks Are Not for Emotional Bonding

Emotional bonding with your stocks is called “anchoring”. This is the most commonly occurring problem with investors. Investment experts conclude that it is not a wise move to pour your emotion into stocks as it prevents you from understanding its original position. We automatically assume that the particular stock will always yield good returns and can never go negative. This assumption has been proven detrimental in the recent years.

5) Greed Is Not Advisable for Financial Health

Currently, our stock markets are in the trend of ‘bull’, so investors try looking for value stocks, i.e. those stocks whose acquisition price is at an all-time low, but when it doubles back, you end up getting a lump sum amount as profit. If only this were true! In reality, it is not. Some stocks are cheap because that is their real worth. Most often, investors do not realize this simple guideline and spend a considerable amount in these stocks. The result of this spending becomes disastrous after a certain period. Finding gems in a trash can is just a saying, not a principle to be followed when investing in the market.

6) Knowing The Right Time to Exit

Investors should know when to quit. However, this is quite easy to say but a difficult thing to do in reality. A person refuses to accept that their shares are failing, but still does not sell them. Such actions damage the portfolio ultimately. Experts suggest that real money is only made when you exit a profit-making portfolio and not by holding on to the negative portfolios.

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