Common Investing Mistakes


“You can’t go by opinions or how you feel. You need to have and follow sound, proven rules” – William J. O’Neil, MarketSmith Founder

Rules are meant to keep you out of trouble, not only in life but in the stock market as well. A set of rules can help you to keep emotions out of investing. Letting emotion guide your decisions is a serious mistake in the stock market, as it can result in poorly timed buys and sells. MarketSmith’s rule-based system for buying and selling growth stocks has stood the test of time. Decades of market research repeatedly showed that winning stocks looked a lot alike ahead of big price moves. It is human nature to bend the rules at times by mixing CAN SLIM methodology with other systems, but tailoring rules to your own tastes lead to subpar results. Learning to follow MarketSmith rules strictly will ultimately help you become a better investor. In simple terms, MarketSmith’s growth-stock methodology states that investors should buy fundamentally and technically healthy growth stocks during market uptrends.

Sounds easy enough, but plenty of mistakes can be made along the way. Here are a few:

• Ignoring underlying market health:  Most stocks follow the market’s general trend. You can buy a stock with a new product and service that’s fuelling big earnings and sales growth, but it won’t mean much if key indices such as Sensex or Nifty are in a distribution phase and institutions are selling hard. That is a tough tide to swim against. You can find market condition on the homepage of our MSI app and detailed articles on key daily/weekly market highlights under the Market outlook section.

• Buying too early:  Another common mistake is buying a growth stock too early in anticipation of a price breakout from a good base. Growth stocks with top fundamentals always digest gains after a run-up and build new bases. Buying during a heavy-volume breakout, especially when institutional investors are in there buying as well, puts the odds in your favour. Do not buy before a base is complete.

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