Investing in the stock market in Kenya can be risky when you are just starting. There is a lot of information to know and a lot to do, which can be confusing.
As a result, you might make many mistakes and risk losing your investment.
In this guide, we reveal the most common mistakes and how to avoid them.
Common Stock Market Mistakes in Kenya
- Investing without knowing enough about the stock market
- Investing in a company that you do not understand
- Investing in the Short-term
- Holding onto Losing Stocks too Long
1. Investing without knowing enough about the stock market
Kenya’s stock market is risky and requires knowledge that beginners often do not have. Millions are lost every day because of the lack of knowledge about what is going on in the market.
This is why it is important for new investors to educate themselves about investments, earnings, and things like that. Investing in stocks can be risky and frustrating if you do not know anything about the stock market.
2. Investing in a company that you do not understand
You should always avoid investing in a company that you do not understand. If you cannot explain to somebody what the company does, you probably are invested in something that is too much for you.
So, unless you know exactly what the company does and how it makes its money, you might want to avoid its stocks.
3. Investing in the short-term
New investors usually think that they will just invest in the stock market and make tons of money quickly. Investments are not something to get rich quickly on. You can avoid this by thinking in the long term.
If you want decent money from your stocks, you will probably have to wait a while.
4. Holding onto losing stocks too long
If your stocks are not performing well, you should consider selling them immediately. This is where many new investors make mistakes; they hold onto their losing stocks too long!
The longer you hold onto a bad stock, the more money you will lose. So, do not let your emotions get in the way of making profitable investments.
5. Not having a strategy
You need to have a plan when you invest in the stock market. When you do not have a strategy, you shoot in the dark. You should always know what your goal is before making an investment so that you can make sure the investments are going to help you reach that goal.
You probably do more harm than good if you do not know your goal.
6. Not diversifying your portfolio
Most people in Kenya do not understand diversification. Diversifying means that you are making investments in multiple businesses instead of just one. This is important for two reasons:
- You can cover all your bases if something goes wrong with one business
- The more money you make, the better off you are in the long run
So, to make your money work for you, diversification is the way to go!
7. Buying shares on credit
This means borrowing money to buy shares. While it might make sense to some people, it is not a good idea. You do not want to spend money you do not have and pay more interest than what you earn in stock dividends.
So, make sure that you only invest money that you have and can afford to lose without getting a financial hotspot.
8. Investing without doing research
Research is the most important thing when it comes to making investments! Before you invest in anything, you need to find out all of the information about the business. Ask yourself:
- What do they sell?
- Who are their main competitors?
- How much money do they make every year?
You should always think about these things before making any investment. You also need to understand your options before buying or selling anything. If you do not know enough about your investments, you waste your time and money!
9. Not knowing how to manage risk
Managing risk is also very important because if you lose it all, nothing is left for you to make back! Many people think the stock market is a risk-free environment, but this is not true. When investing in the stock market, you will always have some risk.
You need to know how much risk you can take before investing. If you are not willing to take any risks, then do not invest more than you can afford to lose.
10. Not having an exit strategy
You need to always think about what you are going to do if the investment does not go the way you want it to.
When an investment is not panning out as you expected, you need to sell it. So, before making any investments, have a plan for every possible scenario that might happen!
11. Picking the wrong stockbroker
Always make sure you choose a competent stockbroker! You should do some research about different stockbrokers before picking the one that is best for you.
Finding a stockbroker with a good reputation is very important because this will influence how much money you make/lose in the long run.
12. Following recommendations blindly
While we highly recommend working with a stockbroker, you should never blindly take their advice because they might have ulterior motives.
Likewise, if your friend/family member/significant other gives you some advice about the stock market, use their knowledge for research purposes instead of making decisions!
This is why we insist on doing enough research and understanding your options to avoid being misled.
13. Not setting stop prices
Stop prices are what you will sell your stocks for if the price drops below a certain point. This is important because you do not want to keep losing money on every share that goes down.
So, before making any investments, set stop prices to help reduce losses.
14. Not keeping track of dividends and other payments
Many people fail to track the money they make from their stock investments. This is very important because you need to know how much money you are making and how it is calculated.
For example, if you own multiple stocks for different companies, those dividends can be added up to increase your overall profit! Keeping track of the money coming in/out will help you see your profits more clearly.
15. Setting unrealistic expectations
There is a reason why the stock market has been around for so long, and it’s not because ordinary people make insane amounts of money in incredibly short periods of time. When investing in the stock market, you must be ready for long-term investments and delays!
Just like regular jobs, you will not get promoted after two weeks on the job or become a millionaire after a few months of saving! You need to be realistic about how much money you can make and not let any moment on the market affect your financial future.
16. Paying too much in commissions and fees
Many people do not bother to look into the commissions and fees that they pay when making an investment. This is a big mistake because these costs add up quickly and can make or break your bank account!
For example, if you trade in 10 different stocks monthly for a whole year, you will have paid $120 in commission fees alone! That is $1,440 per year just in trading fees!
Brokerage commissions should not exceed 2% of the transaction. Always look for a credible broker who charges less.
17. Buying penny stocks
These stocks trade at very low prices and can be very risky. So I would advise against it. Penny stocks are not necessarily scams but offer such low liquidity that you will lose money by the time you cash out of them!
There is a reason why penny stocks are called “penny stocks,”. Often, penny stocks are risky and unsuitable for new investors.
These companies do not have an established track record and will likely fail before ever reaching success!
The Bottomline
There are a lot of mistakes that can make your experience in the stock market frustrating. As you begin your investment journey, be aware of these mistakes and learn how to avoid them.
Once you learn enough about the stock market and your investments, you can start investing. Always keep learning about investing to become a good investor. Start with small investments until you have built up enough knowledge.
At the end of the day, remember that buying stocks is not a get-rich-quick scheme. You will make some money, but it takes time and patience!
