Investing in stocks can be risky for long-term investors, as according to a few studies, around 95% of retail investors lose their money when they invest in the stock market. So how to know when you are buying stocks out of impatience, greed or ignorance, and what should be the traits of the company you are investing in? Here are a few points to consider before you bet your money on the stocks of a company:

Jason Briscoe/Unsplash. Do not always go for a down-trending stock in hopes for turning a profit.

Do not try to catch a falling knife:

Investors are highly likely to go into a herd mentality when they look for options to invest in. Most of the investors might end up buying stocks going in a downtrend to end up waiting for a turnaround. When a stock keeps falling, the investor is more likely to lose money in the stock as it never seems to reclaim the highs. If you are investing a huge amount of money in a downtrending stock, chances are you could end up losing your initial amount and never get around to making a profit.

Nick Chong/Unsplash. Differentiate between cheap stock and a temporary dip before you invest in a company.

Getting confused between cheap and low-cost stocks

The stock price is one of the most important selection criteria in the eyes of most retail investors. And it does feel tempting to invest in a stock with low prices, in the hopes that its price will skyrocket one day. But that is not what usually happens. As it turns out, most cheap stocks do not provide any value. Some stocks at the lower end of the bargain may seem like a good option, but upon further prodding, you will find that they are likely debt-ridden companies or are weak, so you will not end up making any profits off of these, especially when the market goes down cycles.

Gilly/Unsplash. It's best to do your research and not trust every other expert’s opinion before investing.

Trusting the opinions of ‘experts’

New investors, who have just dipped their toes in investing in the stock market, often rely on tips and opinions of friends or colleagues or other unqualified sources to know more about which stocks to buy. But it is a common mistake which can cost them their initial capital. A person must do their own research from verified sources before putting in their money on retail stocks.

Get to know the business:

Being a popular brand doesn’t mean that buying its stocks would be profitable to you as an investor. Comparing the strength of the business, know their debt situation or other internal issues before you decide to put all your money in any particular brand’s stocks.