Things that almost everyone who has just started investing in stocks does

“I want to start investing in stocks, but what should I be careful about at first?” I have been asked this more and more lately. Whenever I answer, I always think that rather than listing points of caution first, it is actually much more useful to know the fact that “everyone stumbles in the same place at first.” Today, I will summarize what I have seen regarding the path that almost everyone who has just started investing in stocks takes.

Choosing stocks based only on rumors and social media

This is the most common one. People buy stocks just because “an acquaintance said they made money” or “it was a hot topic on social media,” without investigating what the company does or why the stock price is at that level now. It might sound like a bad thing, but everyone is like that at first. I myself chose stocks for similar reasons when I first started investing.

The problem is not the selection method itself, but rather that when things don’t go well, people repeat the same selection method next time without verifying “why it didn’t work.” I feel that not reflecting on the results of buying based on rumors is actually a much deeper problem than buying based on rumors itself.

Thinking only about “buying”

Many people who have just started investing in stocks are very enthusiastic about which stocks to buy, but they think surprisingly little about when and under what conditions to sell. After buying, if they have unrealized gains, they get greedy and think, “Maybe it will grow more,” and if they have unrealized losses, they wait without any basis, thinking, “Maybe it will recover eventually.” Since they haven’t decided on criteria for selling in advance, they end up making decisions based on their mood at the moment.

The most difficult part of investing is actually the “decision to sell” rather than the “decision to buy.” Now, I strongly believe that it is worth spending time on this, especially when you have just started.

Increasing the number of stocks despite having a small amount of capital

There are people who only have the knowledge that “diversification lowers risk” and try to force themselves to hold five or six stocks with a small amount of capital. As a result, the investment amount per stock is less than tens of thousands of yen, and the burden of transaction fees becomes heavy relative to the price movements. This is a typical pattern where people are drawn to the good sound of the word “diversification” and choose a strategy that does not fit the scale of their own capital.

Starting without understanding the system mechanisms

I often see people start trading without understanding the basics of the system, such as the difference between a NISA account and a taxable account, whether profit and loss can be aggregated, and the taxes on dividends and shareholder benefits. While some things can be dismissed later as “I didn’t know,” there are cases where you end up paying taxes that you could have avoided just by how you choose your account. You don’t need to understand everything perfectly at first, but it is worth checking at least the basic mechanisms of the account you are using before you start trading.

Being so concerned about price movements that it interferes with daily life

When you first start investing in stocks, everyone opens their stock price app an abnormally high number of times. You find yourself opening your smartphone while working, while eating, and before going to sleep. This is by no means because you have a weak will; it is just that your brain is overreacting to a new experience. However, if this state continues, the quality of your life itself will decline.

What I recommend is a simple trick: “decide on the time to look.” If you make a rule from the beginning to look only at fixed times in the morning and evening, rather than looking many times a day, you can get through this period relatively calmly.

Wanting to pretend that losses “never happened”

Holding onto stocks with unrealized losses without selling them, and telling yourself, “This is an investment, not a failure.” This is a state known as “shiozuke” (pickling). When you first start, there is strong psychological resistance to realizing losses, making it easy to fall into this state.

The important thing is not to fear the loss itself, but to incorporate the possibility of loss from the beginning and decide on a limit for the amount. Whether or not you can take this extra step before you start will greatly change how you deal with it afterward.

Jumping at the appeal of high dividends and shareholder benefits before checking the substance

Choosing stocks just because the dividend yield is high or the shareholder benefits are attractive is also a common pattern when you first start. Dividends and benefits themselves are by no means bad, but if you choose them based only on the idea that “it’s a good deal because the yield is high” without checking the company’s performance or financial situation, the expected appeal itself may be lost later in the form of dividend cuts or the abolition of benefits.

There is usually a reason for a high yield. There are many cases where the yield just looks high relatively because the stock price has fallen due to concerns about performance. I feel that it is important, especially when you have just started, to have the habit of pausing and thinking, “Why is the yield at this level?” instead of reacting only to the high numbers.

They barely pay attention to transaction fees

Many people who have just started trading pay little attention to the fees incurred with each transaction. Even if the amount per trade is small, as the number of trades increases, the accumulated fees can become a significant amount that cannot be ignored. Especially if you repeat small-amount trades, I recommend taking a moment to calmly calculate how much these fees are eating into your profits. Since fee structures vary greatly depending on the brokerage firm, it is well worth comparing these points at the stage of opening an account.

In conclusion

What I have written here is not a mistake that only special people fall into, but a path that almost everyone walks at least once. The important thing is not to be too tense about trying to avoid these, but to develop the habit of looking back on “why it happened” as early as possible when you do make a mistake.

Rather than avoiding failure, it is about increasing the speed at which you learn from it. I believe that whether or not you can adopt this perspective during the early stages will greatly change who you are a few years from now.

※ This article shares my own way of thinking and criteria based on my personal experience, and does not recommend the buying or selling of any specific stocks. All stock examples in this article are fictional. Please make final investment decisions at your own responsibility.