One of the biggest investing mistakes you can make is buying shares in the wrong company. If you’re wondering how this could possibly happen, it’s actually more common than you’d think! Here’s why it happens and how you can avoid making this costly error.
The problem with buying shares
What do GameStop and Australian mining stock have in common?
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Well, at first glance, nothing, but here’s how they’re listed on their respective stock exchanges:
- GameStop: GME on the New York Stock Exchange.
- GME Resources Limited: GME (on the Australian Securities Exchange).
They’re both listed as ‘GME’. Investors recently mistook GME Resources for the popular GameStop, which caused an unexpected surge in the small mining company’s trading volume. Sure, this is intriguing news for the mining company, but it’s bad news for the traders who just invested capital in the wrong company.
1. Do your research
First, you need to know your stock exchanges!
If we take GameStop as an example, it’s on the New York Stock Exchange. GME Resources Limited? It’s on a totally different stock exchange. So, it’s not enough to search for ‘GME’ and buy stock. Research the company thoroughly before you make any investments – otherwise, you could easily choose the wrong company.
Next, make sure the company’s actually listed on a stock exchange. Here’s another recent example to show you why:
- Signal is a private, unlisted messaging app once promoted by Elon Musk. Since it’s not listed on the stock exchange, you can’t buy its shares.
- Signal Advance, a completely unrelated company, saw an unexpected flurry of activity when investors mistook it for the messaging app.
The lesson? Don’t make assumptions – do your research to avoid mistakes when investing!
2. Check the ticker
The ‘ticker’ is the abbreviation used to represent a company on the stock exchange (like ‘GME’). As you can see, they’re easily confused, so it’s crucial you double- and triple-check that the ticker represents the company you want to invest in.
As another example, here are two very similar tickers on the Nasdaq exchange that could lead to investing mistakes:
- Tesla – TSLA
- Tiziana Life Sciences – TLSA
One letter makes all the difference here. If you’re in any doubt about whether it’s the right company, don’t invest until you clarify the details. And if you’re entering a ticker to purchase some stock, make sure the company name matches up with what you think you’re buying.
The cost of investing mistakes
Investing can be fun, but it’s not a game. There’s always some financial risk involved, and there’s a chance you could lose your capital, which may have serious financial consequences for you.
With these risks in mind, it seems particularly important to avoid investing mistakes like investing in the wrong company from the get-go. But if you’re ready to invest, and you’ve double (and triple) checked the company details, just remember these extra words of caution:
- Think about how much risk you’re comfortable with. Never invest more than you can afford to lose.
- Research your market and the relevant exchanges before you start dealing.
- It’s often easier to ride out market fluctuations if you have a diverse portfolio. If you can, consider spreading your investment across a few assets.