That day I was sitting with one of my friends and we started discussing about stock market. Soon my friend came out with a tip that someone had suggested him to buy ?Stock A?. I told him that I do not find any reason that the particular stock is a good buy. I was bearish on the stock keeping in mind the fundamentals. My friend did not seem to be convinced and he felt that he would miss the boat if he doesn't react to the same. So, I knew that he would take a position and that very day the stock fell down by 10% and within three days it went down by 29% in all.



He was now skeptical in making equity investments with the losses suffered in a couple of days. He blamed the stock market and others for his misfortune but at the same time wanted to make wealth out of the capital market.

This shows that there would be many investors would be blindly investing or would react to the tips given by ?experts? without even finding the ?why? of it.

So, what is that that the investors want? Everybody wants to make least number of big mistakes. The list is pretty long but there are certain common mistakes that people tend to make and one can avoid the same by being cautious.

Mistake Number 1- Want to make big bucks on the basis of tips- Anybody would love to have the luxury of earning hefty numbers by just reacting on the tips made by people.

Mistake Number 2- Buying a stock on its way down- Any investor would like to buy to buy cheap stocks as it would increase their profits. And if the investor is already holding the same stock at higher price, then he has all the more reasons to buy them at lower cost. They feel that this would help in averaging the price.

Mistake Number 3- Ignoring risk in the investment and only looking at the returns- Risk is an integral part of any investment alternative. Some would be more risky than the others. People generally do not consider the down side of the risk.

For example: Stock futures can give you huge returns, and at the same time they can wipe out the capital, leave aside profits; any day. Mutual funds tend to give good returns but at the same time one needs to assess the exposure that the fund manager has taken in various sectors.

Mistake Number 4- Buying penny stocks as they are cheaper and not taking positions on high priced stocks as the investors feel that they are expensive.

Mistake Number 5- Existing winners early and sticking to losers- If I ask you that suppose you are long on a stock at $ 30 and the prices start falling reaching a level of $25. What will you do? Hold or exit? Generally, the answer would be hold. Suppose the price further goes down to $ 20, what will you do? Again hold. Ok, now we take another situation. Suppose the same stock of $ 30 starts appreciating and reaches a level of $36, what will you do? Hold or Sell? May be sell. Ok suppose now it reaches a level of $ 41. Hold or ?.I will sell it off immediately. Profit of $ 11 is more than what I had thought of.

This was not the reaction when the stock price was falling. This is the thinking of the general investor as they are well prepared for the amount of profit that they are expecting but they will never fix the amount of loss that they are ready to bear. Hence, they exit winning stocks at an eary stage and stick to the loss giving stocks.

Therefore, we as investors should keep in mind certain important things so that we keep our capital intact and also come out as winners.