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Business News/ Money / Personal Finance/  Stock market today: Four important factors that retail investors often miss when chasing profits
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Stock market today: Four important factors that retail investors often miss when chasing profits

Stock market today: Retail investors often overlook key factors when investing in stocks, such as the misconception surrounding penny stocks and the dangers of FOMO-driven decisions

Here are some important factors that retail investors often fail to consider when deciding where to invest their money in the stock market (AFP)Premium
Here are some important factors that retail investors often fail to consider when deciding where to invest their money in the stock market (AFP)

Stock market today: Many investors are attracted to bull markets. However, when choosing where to invest in stocks, retail investors often miss important factors. A look at the important factors that retail investors often fail to consider when deciding where to invest their money in the stock market

1)The misconception surrounding the penny stocks

The misconception surrounding penny stocks primarily revolves around the perception of them being an easy route to quick wealth. Penny stocks are often misunderstood as low-priced stocks that have the potential to skyrocket in value, turning small investments into significant gains in a short period. However, the reality is quite different

“Penny stocks lure investors with get-rich-quick dreams, but fundamentals ultimately determine fates. Rather than names with tantalizing stories, seek companies with solid leadership executing viable plans. Quality large-caps like HDFC Bank, with proven trajectories spanning decades, offer similar breakout potential minus the uncertainty," said Ashish Aggarwal, Director, Acube Ventures

2) Fear of Missing out (FOMO) factor

FOMO arises when investors witness others benefiting from a specific investment and worry about missing out on potential profits if they don't act promptly. This fear can prompt impulsive decisions driven by emotions rather than thorough analysis. Investors might feel compelled to enter the market or purchase a particular stock merely because others are doing so, without considering whether it fits their investment objectives or risk tolerance.

"While money may have no memory, markets and stock prices often do. Prudent investing means learning from the past, not just chasing what's hot. Have the wisdom to spot when that rockstar stock has played its hit single and likely faces encores sending crowds home. Timing matters. Don't let fear of missing out goad you into "buying the peak" as that hit fades. Remember, grounded analysis guides which emerging instruments to back as the next rising stars, well before headlines trumpet their ascendance," said Ravi Singhal, CEO, of GCL Broking.

3) Do not invest in a stock that is falling sharply in price

Investing in a stock that is experiencing a sharp price decline can be risky for several reasons. When a stock is falling sharply, it may indicate underlying issues within the company, such as poor financial performance, management problems, or adverse industry conditions. Buying into a declining stock without fully understanding the reasons behind the decline can lead to significant losses.

"There may be a pot of gold beneath red-soaked values screaming "buy", but don't grab falling knives based solely on price. Sharp selloffs typically indicate fundamental fractures that further hacking reveals. Let sinking shares find their true level first. Discern if the axing reflects problems already resolved or reveals deeper rot still spreading, before you risk bloodied returns. In stocks, just as in relationships, character matters most," said Ashish Aggarwal.

Long term perspective

Retail investors often get caught up in short-term market trends and may forget about the significance of long-term investing. Successful investment demands patience and discipline to weather market ups and downs and let investments mature over time. Short-term trading tactics can result in increased trading expenses and reduced overall returns.

By considering these critical points, retail investors can make more informed investment decisions and improve their overall investment outcomes in the stock market.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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ABOUT THE AUTHOR
Sangeeta Ojha
A business media enthusiast. Writes on personal finance, business and banking.
Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
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Published: 01 Mar 2024, 12:12 PM IST
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