Beginner investor? 3 tips to avoid costly trading mistakes

If you’re a beginner investor, choosing news sources carefully and shunning social media could help you avoid costly mistakes. Here’s why.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Traders have been warned not to ‘jump on the bandwagon’ when making investing decisions. That’s the view shared by a CEO of a leading Forex Broker, who also suggests investors should take ‘expert’ opinions on social media with a pinch of salt.

So what other tips should traders – particularly beginner investors – follow in order to avoid costly mistakes? Let’s take a look.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

[top_pitch]

How can beginner investors avoid costly mistakes?

According to David Shayer, UK Vantage CEO, traders can avoid making costly mistakes by choosing news sources carefully, being cautious of tips on social media and avoiding the need to jump on any investing bandwagons.

Let’s take a look at each of these tips in more detail.

1. Choose news sources carefully

Many traders today rely on news sources in order to select stocks. The theory is that by reading the news, understanding company reports and reading up on any potential policy changes, investors can pick up on any trends that may impact the share prices of specific companies. 

However, in the age of the internet, there are almost limitless news sources to choose from. With this in mind, it goes without saying that some publications are more trustworthy than others.

Shayer says investors should pay close attention to the news sources they rely on and be wary of social media. He explains: “No trader should rely on traditional publications exclusively. The world has moved on. However, nor should they depend exclusively on social media and make trades based on a single Tweet.

He further clarifies by saying, “Traders must gather information from a range of sources and work out which ones are best for what.”

2. Be cautious of social media investing tips

Social media has undoubtedly changed the way we learn about breaking news, with Twitter often the first port of call if we’re particularly keen for the latest insights on a developing story.

While social media has its supporters, many of the most popular platforms attract a fair amount of fake news. With no borders to contend with, fake news on social media can sweep across the globe and easily deceive large numbers of people.

Shayer points at a recent fake press release from Walmart shown on social media. The release incorrectly suggested the retailer would soon accept a new cryptocurrency as a form of payment. When the release went viral, the price of the mentioned cryptocurrency skyrocketed, until falling sharply after it was discovered the news was fake. 

Shayer also comments on the ease with which inaccurate news can develop, especially within the investing sphere. He explains: “Anyone can start up a channel and post trading advice, for which there’s plenty of demand. The pandemic has seen a sudden rise in the popularity of financial influencers who post tips on the likes of TikTok.

“However, the ungoverned nature of social media means there’s no shortage of unscrupulous people out there providing false information and selling get rich quick schemes.”

3. Don’t jump on investing bandwagons

A final tip for beginner investors is to avoid stocks that have been ‘pumped’ because of online hype. That’s because traders jumping on investing bandwagons can turbocharge the share price of a particular stock. This can make a particular stock surge above its true value – if only temporarily. 

Shayer explains this concept in more detail. He explains: “Investors flock to so-called meme stocks – whereby social media hype inflates the price of an asset for the wrong reasons. While some of these are coordinated attacks against hedge funds, it shows how social media contributes to inflating the price of popular stocks and ETFs.”

A good example of this happening is when retail investors piled in to purchase Gamestop shares last year in retaliation for the behaviour of a particular hedge fund that hoped to profit from the retailer’s future collapse. While Gamestop’s share price skyrocketed, it was soon followed by a sharp fall. 

Shayer highlights how retail investors can lose out when such events happen, and he warns against joining the party. He explains: “Hype makes it easy for retail traders to get sucked into a bad trade. But if you’re hearing about an ETF that has performed very well, you might have already missed the boat. Best to err on the side of caution”.

[middle_pitch]

What else should beginner investors know?

As well as the above investing tips, if you’re new to investing, it’s worth familiarising yourself with the investing basics to give yourself the lowdown on the stock market. As with any investing, always remember that your portfolio can fall in value as well as rise. 

Are you planning to invest? If so, take a look at The Motley Fool’s top-rated share dealing accounts.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »