7 Mistakes we make while investing in Stocks

I draw an analogy between the game of Cricket (one of the religions in India!) and investing.

Here are 7 common mistakes we would never make while selecting a team/playing. But, we are comfortable doing them while investing.

1. Wickets fall when the batter attempts to hit every ball out of the park. But we expect super-abnormal returns from every stock we invest in.

2. Every wicket has a typical behavior. Some are slow tracks, some are bouncy. The team is selected accordingly. However, some key players handle all situations well. But while investing, we opt for stocks with no proof of past performance!

3. Dilshan invented the scoop shot, and it became a rage. Today, almost every batter attempts it. They throw away their wickets in the process. Similarly, people fall in love with products and invest in companies that make them instead of looking at the fundamentals of that industry and the company.

4. In Cricket, wickets fall in a heap. It is more a psychological thing. Players who frequently stand on the crease during such collapses are superheroes. There are a few superheroes in stocks. They consistently beat the downfall and the index. These ought to be in our portfolio but most often are not.

5. Most of the runs in ODI and T20 come in the last few overs. However, you need to have wickets in hand to take advantage. Stocks too rally in a short period and then move sideways or fall. Unless we stay invested in these times of ups and downs, we cannot win the match.

6. In one-off cases, an unexpected player wins a match for the team (For example - Deepak Chahar winning the second ODI against Srilanka with his batting). But, in the long run, players who are consistent win matches. It is essential to evaluate the strengths and weaknesses of stocks in our portfolio instead of being swayed by some share that goes up for some unknown reason.

7. We do not look only at the batting average of a batter for selection in the team. However, when it comes to investing, we select stocks based on only a few metrics like PE Ratio, EPS, 20 Week Moving Average, etc.