10 Mistakes New Investors Make on the DSE (and How to Avoid Them)
Almost every experienced investor on the Dhaka Stock Exchange will tell you the same thing: their most expensive lessons came in their first year or two. The good news is that most of those lessons are predictable. New investors tend to make the same handful of mistakes, again and again.
Here are the ten we see most often, what they look like in the Bangladesh market, why they hurt, and what to do instead. If you are completely new, you may want to start with our guide to the basics of the Bangladesh stock market first.
1. Buying on rumours, “tips” and serial trading
What it looks like: A Facebook group or Telegram channel says a small company is “about to fly”. Someone promises “guaranteed” profit if you buy before a certain date. A weak, often Z-category share starts rising for no clear reason, and people pile in hoping to sell to the next buyer. This gambling-style “serial trading” is common in thinly traded junk stocks.
Why it hurts: By the time a tip reaches you, the people who started it may already be selling. When the buying stops, prices in weak stocks can fall as fast as they rose, and there may be few buyers when you want out.
What to do instead: Treat any anonymous tip as noise until you have checked the company yourself. The Bangladesh Securities and Exchange Commission (BSEC) has repeatedly warned investors against market manipulation and rumour-based trading. If someone offers you a “guaranteed return” or asks you to hand over money or account access to trade for you, do not engage. Report it to BSEC or the stock exchange, and tell your broker.
2. Putting everything in one or two stocks
What it looks like: You find one company you like, or one sector that is hot, and put almost all your savings into it.
Why it hurts: One bad news item, such as a weak quarterly result, a regulatory change or a sector slowdown, can wipe out a large part of your capital at once.
What to do instead: Spread your money across several fundamentally sound companies in different sectors, for example banking, pharmaceuticals, telecom, power, food and engineering. If you have little time to research, listed mutual funds can give you diversification in a single purchase. No single stock should be able to sink your whole portfolio.
3. Overtrading
What it looks like: Buying and selling every day or every week, chasing small price moves.
Why it hurts: Every trade has a cost: brokerage commission, exchange and regulatory fees, and in some cases tax. Each one looks small, but across dozens of trades they add up and quietly eat your returns.
What to do instead: Trade less and think more. Before each trade, ask: “Why am I buying this, and what would make me sell?” Check your account statement to see how much you have paid in charges over a year.
4. Panic selling in a fall, FOMO buying at the top
What it looks like: The DSEX drops sharply for a few days, everyone around you is scared, and you sell good shares at a loss. Months later the market is rising, everyone is talking about profits, and you rush back in near the peak.
Why it hurts: This is the classic “buy high, sell low” trap. Fear and the fear of missing out (FOMO) push you to do exactly the opposite of what makes money.
What to do instead: Decide your plan before emotions arrive. Know why you own each share. If the company’s business has not changed, a market-wide fall alone is not a reason to sell. Consider investing a fixed amount regularly, for example every month, so you are not trying to time the market.
5. Using margin without understanding forced sale
What it looks like: You take a margin loan to buy more shares than your own money allows, expecting prices to keep rising.
Why it hurts: Margin magnifies losses as well as gains, and you pay interest on the loan. If prices fall and your own equity drops below the required level, you will get a margin call. If you cannot add money, the broker may have to sell your shares, often at the worst time. This is called a forced sale, and it can turn a temporary dip into a permanent loss.
What to do instead: Do not use margin until you have some experience and fully understand the rules, the interest cost and the forced-sale triggers. If you do use it, borrow well below the maximum and only buy eligible, fundamentally strong shares. Read how it works on our margin loan page and ask our team any questions before you sign.
6. Ignoring fundamentals
What it looks like: Buying a share because the price chart looks exciting, without ever opening the company’s financial reports.
Why it hurts: Over the long run, share prices follow the real business. A company that is losing money, has weak cash flow or keeps skipping dividends is unlikely to reward you for long.
What to do instead: Learn a few basic numbers before you buy:
- EPS (earnings per share): is the company profitable, and is profit growing?
- NAV per share: what is the company’s net asset value behind each share?
- Operating cash flow: is real cash coming in, not just profit on paper?
- Dividend history: has it paid consistent cash dividends over several years?
- Category: is it in the A, B, N or Z category, and why?
You can find these in annual and quarterly reports, and in company information on the DSE website.
7. Thinking a high price means “expensive” and a low price means “cheap”
What it looks like: “This share is only Tk 8, it can easily double. That one is Tk 400, too expensive for me.”
Why it hurts: The share price on its own tells you almost nothing about value. A Tk 8 share in a loss-making company can be very expensive. A Tk 400 share in a highly profitable company can be good value.
What to do instead: Compare price with what you get. The price-to-earnings (P/E) ratio compares price with EPS. Price-to-NAV compares price with net assets. Dividend yield compares the cash dividend with the price. Compare these with peers in the same sector.
8. Chasing IPO listing-day gains, then holding weak companies
What it looks like: You apply for every IPO, or buy a newly listed share in its first days of trading because it is hitting the upper price limit. When the excitement fades, you keep holding, hoping it comes back.
Why it hurts: Many new listings rise early and then drift down for months or years. Investors who buy late in the listing rally, or who keep holding a company with weak fundamentals, often end up with losses.
What to do instead: Read the prospectus before applying. Look at the company’s business, profit history, use of IPO money and the valuation. Decide in advance what you will do after listing. Remember that once a company is listed, it should be judged like any other share, on its fundamentals.
9. Investing money you need soon
What it looks like: Putting in money that is meant for school fees, a wedding, rent, or a business payment next month, or investing without any emergency savings.
Why it hurts: The market can stay down for months or longer. If you need the cash during a downturn, you are forced to sell at a loss, no matter how good the company is.
What to do instead: First build an emergency fund that covers several months of expenses, kept in a bank account or other safe savings. Only invest money you will not need for at least a few years.
10. Not tracking your portfolio and corporate news
What it looks like: You buy shares and forget about them. You do not notice dividend announcements, record dates, AGM notices or right-share offers.
Why it hurts: To receive a dividend you must hold the shares in your BO account on the record date, and because trades take time to settle, buying too close to it can mean you miss out. Right shares must be subscribed by a deadline, or the opportunity is lost. Missing these costs you real money.
What to do instead: Review your portfolio at least once a month. Follow price-sensitive information and announcements for the companies you own. Keep your BO account details, bank account and mobile number up to date so dividends and notices reach you. When in doubt about a record date or right-share deadline, ask your broker.
Good habits checklist
- Keep an emergency fund before you invest.
- Only invest money you will not need for a few years.
- Check EPS, NAV, cash flow and dividend history before buying.
- Spread your money across several sectors.
- Trade less, and know why you are buying and when you would sell.
- Avoid margin until you fully understand forced sale.
- Ignore “guaranteed return” offers and report them to BSEC.
- Track record dates, AGMs and right-share deadlines.
- Review your portfolio and account statement regularly.
Investing on the DSE does not have to be a gamble. Patience, basic research and a simple plan will put you ahead of most new investors. When you are ready to start, you can open your BO account online with Mika Securities, a DSE member since 2005, and trade through the Amar Biniyog app.
This article is for general education only and is not investment advice. Investment carries risk; past performance does not guarantee future returns.