Common investment errors young entrepreneurs must avoid

August 20, 2013 by OKECHUKWU NNODIM Leave a Comment

   

It is common for learners to make mistakes, but when dealing with money, such errors can have serious consequences, OKECHUKWU NNODIM writes

It is a proven fact that it is best to start young when learning any skill or investing in any business. Experts say entrepreneurs, who begin from the scratch, generally have the flexibility and time frame to take on risk and recover from their money-wasting errors. Hence, it is important for young entrepreneurs to know the common mistakes to avoid in order to achieve a considerable level of success in business. Below are a few errors to steer clear from if you must make headway as a young investor, according to experts.

Poor investment knowledge

The Chief Executive, Nordmark Communications Limited, a notable mobile phone/accessories outfit in Ojo, Lagos, Mr. Nnamdi Daniel, says poor investment knowledge is one major factor that often leads to the collapse of most young businesses in the country. Daniel, who has been in the trade for over a decade, notes that many young entrepreneurs fail to painstakingly learn the ropes of their preferred trade before establishing it. “They often times end up burning their fingers and going back to square one before realising their errors,” he says.

Daniel advises that it is best to make mistakes while still learning than to suffer the consequence of wrong investment decisions. He urges young investors to scout for experts or individuals, who have succeeded in whatever field they wish to invest. “Meet those who are genuine and are doing well and learn from them thoroughly. This might be difficult, but it will definitely pay off when you start your own,” he adds.

Procrastination

No serious minded venture will accept procrastination as favourable. Experts say procrastination can be very detrimental while investing because the markets move so quickly. However, good investment ideas are not always easy to come by. If, after doing a research, a good investment idea arises, it is important to act on it before the rest of the market takes note and beats you to it. Successful investors are of the view that young entrepreneurs can be prone to failing to act on a good idea out of fear or inexperience. They note that missing out on a good idea can make a young investor revise his opinion upward and still purchase an asset when it is not warranted.

They explain that young investors often find themselves with too many options and not enough money. This is one reason entrepreneurs in this category must brainstorm thoroughly before investing. This, however, should not give room for procrastination.

Over speculation

Instead of investing, many young entrepreneurs sit back and speculate. At times, they over speculate, experts say. They note that a young investor is at an advantage in his or her investing life. Should the level of wealth be held constant, an investor’s age affects how much risk he or she can take on. So, a young investor can seek out bigger returns by taking bigger risks. This, experts say, is because if a young investor loses money, he or she has the time to recover the losses through income generation. This may seem like an argument for a young investor to speculate, but it is not.

Meanwhile, it is common for a novice to be inclined toward speculation if he does not fully understand the investment process. But experts say speculation is often the equivalent of gambling, as the speculator does not necessarily have a reason for a purchase except that there is a chance that it may go up in value. They observe that this can be dangerous, as there are many experienced professionals waiting to take advantage of their less-experienced counterparts. Therefore, to avoid gambling, a young investor should look to invest in companies that have higher risks but greater upside potential over the long term.

Failing to ask detailed questions

It is your money that you are investing. Even if it is not yours, you are accountable for whatever is spent on the investment. Bearing this in mind, you should be bold enough to ask all the questions that you need clarification on before putting down your money. For instance, if a stock drops a lot, a young investor might expect it to bounce right back, but more often than not, it is down for a good reason. One of the most important factors in forming investment decisions is asking why. Young investors, who have not experienced the pitfalls of investing, can be particularly susceptible to making decisions without locating all the pertinent information.

Not investing

Experts say an investor has the best ability to seek a higher return and take on higher risk when he has a long-term time horizon. They note that investors have the longest time horizons, therefore, a high tolerance for risk, when they are young. Young people also tend to be less experienced with having money. As a result, they are often tempted to focus on how money can benefit them in the present, without focusing on any long-term goal (such as retirement). Spending money now instead of saving and investing can lead to bad habits and contribute to a lack of savings and retirement funds.