So I chided him for trying to induce me to invest in Yongnam. Of course he denied flatly and vehemently defended that he was just sharing good stuff. I gave him the benefit of my doubts since he is my good friend, nonetheless, I did not invest in Yongnam.
One of the most common mistakes made by new Singapore investors is the tendency to adopt a herd mentality. Tempted to make quick profits, many novice or inexperienced investors enter the stock market and rely solely on rumors and tips from friends or brokers. As they lack the knowledge to invest on their own, this group of young investors value opinions of friends, brokers or relatives when it comes to investing. I am quite concerned for this group of uneducated investors because many of them will confess their regrets after paying expensive “school fees”.
To a large extent, it is not entirely their fault. Our education system is not shaped to provide guidance on personal finance and investment to our students. Many young adults are suddenly thrust into working life after graduation with no clue on how to devise monthly budget, how to control credit card spending, how to allocate asset and how to plan for retirement.
To make things worse, our local media likes to give lots of attention on how young investors become rich from investing within a short time. I seldom come across any articles on how traders lost money big time. The emphasis promoted by mainstream and online media is always to elaborate how traders become rich through active trading. I seldom come across detailed stories of how people lost big money dabbling in the stock market. All these factors play a role in encouraging young investors in Singapore to adopt a herd investing mentality fashioned on short- term trading.
To become successful in investing, you must adopt a contrarian approach to investing and you must never buy a stock based on herd mentality, which can be dangerous. Now, obviously, you would be blinded by emotions when others, especially your friends, bragged to you how much profits they made from these counters. When faced with such situation, always control your emotions and apply objective thinking whether the stock is really worth your investments.
Always remember there is no free lunch in this world and if your friends tried to induce you to buy a stock, there could be a motive. A good company often operate in boring business that people seldom talk about or bother to look at. So if your friends or everyone else is talking about a particular stock, it is perhaps time for you to exit or steer clear of this stock!
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