Novice investors in the stock market often make the same mistake: They grow impatient when their investments dip. This causes them to withdraw their money too quickly, with rookie investors often taking their dollars out of a stock just before its value starts to rise.
Timing the Market an Impossible Task
Experienced investors in stocks know how difficult it is to time the market. The old saying "buy low, sell high" certainly makes economic sense. But figuring out when a stock is at its lowest or highest point is no easy trick. There is, unfortunately, no exact science behind investing in the stock market.
Simply put, it's next to impossible to guess with any sort of accuracy when a stock is going to rise in value and when it's going to drop. Those investors who try to do this on a regular basis will end up frustrated. They'll often lose money, too.
It's best instead to be a patient stock market investor.
Patient Investors See Better Returns
According to Standard & Poor's, for the two decades ended Dec. 31, 2008, the S&P 500 saw an annual rate of return of 8.43 percent. Of course, rates of return did fluctuate during these years. We've seen, for instance, the stock market both soar and struggle during the country's current recession.
The point is, though, that those investors who hold their money in historically strong stocks over the long haul have generally seen their investments increase in value.
Trying to time the stock market's ups and downs could leave investors with a significant loss. Too often, impatient investors yank their money out of a particular investment only to watch that investment's value steadily climb soon after.
Don't Trust that Expert
Many new investors blindly follow the advice of financial experts they see on TV or hear on the radio. Others may listen intently to each word uttered by their neighbor who says he made a killing in the market this year. Still others hire advisors who recommend stock market investments.
There's nothing wrong with seeking advice, especially for those investors new to the way the stock market operates. But new investors should be careful to avoid all "experts" who say they can predict when a stock is ready to go bad or soar in value.
That's because there are no experts, no matter how many years they've spent playing the stock market, who can guarantee a stock's future performance. There's truth to the notion that past performance does not predict future results.
Novice investors should work only with financial professionals who are honest enough to admit this. "Experts" who claim to know it all are the worst friends that impatient novice investors can have: They'll encourage these investors' natural tendencies to endlessly move their investment dollars around.
Invest for the Long Haul
The real secret to successfully navigating the stock market is for investors to find stocks with which they feel comfortable or that have a strong history, invest in them and then leave them alone.
Investors who follow this strategy will amost always end up outperforming those who aren't able to leave their stock market investments alone.