For a novice investor there are many grey areas in the field of equity investing. Many mistakes are identified only by experience but some if committed may be fatal and may lead to irreversible loss and misery. This section therefore warns the individual against some of the must-avoid errors
Error 1 Not having (Deviating from) a thoroughly tested plan
An investor should have a thoroughly tested plan before committing his capital to a scrip. The plan comprise of steps like defining the objective of investment, designing a procedure to identify a scrip, deciding on capital allocation for selected scrips, setting the buy and sell conditions and rates, etc.
But some times even seasoned investors are carried away by the pressure of their peers, broker or the market movement itself and act impulsively resulting in huge losses. It is important to stick to a thoroughly tested, self sufficient plan that has an answer to all market scenarios.
There fore, have a detailed and flexible plan and stick to it resisting all pressure.
Error 2 Investing huge capital without proper experience
Imagine a first year medical student attempting a cardiac surgery - A fatal outcome is virtually guaranteed. In any field, expertise is gained through experience. So before any one attempts something big in the markets, it is necessary to gain sufficient expertise through first hand experience. Starting with a small capital is an important concept many ignore.
The maximum start up capital for a novice should be less than one lakh rupees. It is the learners responsibility to learn the basics thoroughly, test it with this capital and gain experience before he invests more, at least in the first two years of investing.
