A Few Traps To Avoid For New Stock Traders

Posted by man on 04 September 2010

The stock market actually is a great place to invest and grow your money over a long time period.However there really are a lot of traps that new traders tend to fall into. These things may sound like a good idea, but when it comes down to it, they really aren’t.

If you have some extra money and wish to invest in the market here are some stock tips on things to avoid.

1. Listening to Rumors

If you own a stock then of course you want to know everything about the company. And every little rumor that pops up, well you have to consider it, right? Wrong!

There are a lot of false rumors with any sort of gossip. And since the stock market is so complex, it may not even help you. Even if it is right it may not have much of an impact on the price of the stock because it is already factored in.

What listening to rumors will do however, is freak you out and cause you to go against your better judgment.

2. Buying Because of Dividends

Dividend paying stocks can be a great way to get some passive income if they are combined with a fundamentally strong stock. But buying a stock just for the dividends is a stupid mistake.

The reason behind this, the dividends are not free money they come out of the price of the stock.They really didn’t give you anything that you did not already have. If a stock pays out a $1 dividend and is trading at $100 it will be trading at $99 after the dividend because it is taken out of the price of the stock.

If you buy a fundamentally weak stock the dividend will just help the price of the stock fall faster.Ok, so you get some money out of it, however this would really just be the money that you originally put into the investment to began with. And if the company is weak enough to go bankrupt then the dividends aren’t going to come to the rescue.In other words buying a stocks just because of the dividends that it offers is a bad idea.

3. Buying Penny Stocks

Another idea people have is to buy penny stocks. They buy $.05 stock and they hope that it will take off and make them rich, it sounds like a lottery doesn’t it? That is no way to invest.There is only one problem with this, and that is that the stocks are just not worth investing into.

So, if you do buy one consider it a risky play that will most likely end up with you losing money.

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