3 common mistakes in stock investing

Posted at 08/02/14 6:22 PM

MANILA, Philippines - Investing in stocks can be a little tricky.

On ANC's On The Money, Henry Ong, director of the Registered Financial Planners Philippines, revealed three common investing mistakes. He also shared some tips on how to avoid them.

Common mistakes

1. When people try to time the market.

"They try to use a lot of charting. In theory, you can do that. You can buy at this point and sell at this price. But in reality it doesn't follow because markets involve a lot of emotions, it can change. That's one mistake because when people always try to time it, the effect would be frequent trading and it would lead to a lot of losses, expenses and fees that would be involved in trading," Ong said.

2. When people follow and buy on recommendations.

"Some people just don't do their research, they just follow the broker's advice or joining social media discussions about how good a stock is... I think these are very good sources of info but that should not be the sole basis of making a decision. To seriously invest, you should do your own research and validate these claims," he said.

3. When you get too attached to a stock.

Ong said it's not good to "fall in love" with a stock.

"Even when it's losing, you don't want to sell it. Sometimes, it becomes emotional, instead of getting objective when it comes to investments. In investments, sometimes, when a stock is falling and if you think the stock is going to fall deeper, you have to make a decision to cut your losses because as a rule, when the stock is losing 7-8% then that's the best time to cut your losses," he said.

Make a plan

To avoid these mistakes, Ong emphasized the importance of having a plan.

He noted there are two types of emotions in the stock market - fear and greed. "If you invest, you will be easily influenced by what is happening in the market, so if you don't have a plan, you won't have the discipline of knowing when to buy or sell," he said.

He suggested coming up with a strategy and knowing your investing style.

"Is your investment style more of growth investing or value investing? Or is it contrarian investing? Once you have the strategy, you have to stick with it," he said.

Another thing to consider is your risk appetite. "In investing, you have to determine how much you are willing to lose," he said.

Ong also emphasized the importance of setting benchmarks, which will serve as a guide to determine if the stock is performing above to below the market.

"You have to come up with your own target regardless of the benchmark... Decide how much you want to make," he said.

Asset allocation, he said, is one way to minimize your risk. You have to decide how much of your total portfolio will be invested in different instruments such as stocks, bonds or real estate.

Asked if he has a "winning strategy" for investing in stocks, Ong said: "You much have a plan, a target how much you want to earn and where are you going to use the money."