Top Ten Investment Mistakes -

Home
>
Investing
>
Top Ten Investment Mistakes

Top Ten Investment Mistakes

1. Lacking an investment plan a/k/a/ "Don't take a trip without packing the map". A pre-planned asset allocation generates positive results and eliminates emotional panic selling.

2. Buying cheap stocks a/k/a "Road crews erect "Dead End" signs for a reason". Most stocks with low share prices also arrive at the bottom for a reason. There must be institutional interest to influence price, and many won't even glance at stocks below $8 or $10.

3. Purchasing story stocks a/k/a "A good fable lulls a child to sleep". Don't get taken by compelling "story" stocks. The plots include a cure for cancer, a big oil strike or a revolutionary invention. Such promising stories rarely prove true. If the "story" materializes, the company will still be a buy.

4. Selling your winners a/k/a "You gotta know when to hold 'em'". Don't sell your winners. These companies combine outstanding management, product and cash flow, creating steady growth for years. Holding these companies for the long run will compensate for other investing mistakes. In fact, one or two big winners can create real wealth.

5. Holding onto a peaked stock a/k/a "Trees don't reach to the heavens, and companies don't continue growth beyond reason". Top companies peak for reasons such as attrition of top management or competition. Systematic pruning will help you avoid a rotting, unhealthy investment.

6. Under diversification a/k/a "Ideas are good, but a mind full of them is better". Resist the urge to rely on a few stocks that you know. Lack of portfolio diversification leads to erratic and volatile returns, and owning several companies in the same industry also isn't diversification. The best investment results happen by investing in leading companies across various industries.

7. Over diversification a/k/a "A portfolio stretched like an old T-shirt won't help an investor benefit from their insight". You don't create diversification by spreading yourself too thin. Although a mind full of ideas is good, ideas acted upon on a whim waste good thoughts.

8. Over trading a/k/a "Replanting a garden every week won't produce high-quality tomatoes". Don't follow market "noise" and bounce from sector to sector or theme to theme. This prevents investors from enjoying the rewards of a long-term winner. Give stocks enough time to mature and compound.

9. Too much margin a/k/a "Living on borrowed time brings a rush of excitement, but it's a quick trip when time expires". Don't underestimate the damage margin can create. The relatively low cost and ease of obtaining leverage takes investors down a dangerous path. When a portfolio on margin declines rapidly, it can catch even experienced investors off guard.

10. Too many options a/k/a "In life there's always options, (but timing makes the difference"). When you buy options, you must be right and use impeccable timing. Options allow an investor to use leverage and control more shares but there are relatively high spreads involved in trading them. Many times investors lose money on their transaction even after they followed correct assumptions.

Mr. Kimmel is a private money manager and the author of "Magnet Investing, build a portfolio and pick winning stocks using your home computer". His methodology was the subject of a Forbes Magazine article (June, 2004).

Barbara Kimmel is an award winning publisher and publicist at Next Decade, Inc. (http://www.nextdecade.com).

In The News:

New US rules aimed at helping investing in foreign markets
Forbes, NY - 21 hours ago
United States - WASHINGTON (Reuters) - US investors are expected to have an easier time assessing and accessing foreign markets under rules adopted by the ...
SEC fines California hedge fund manager $100000 in real estate ... Los Angeles Times
all 7 news articles

BBC News
Saving and investing: Your questions
BBC News, UK - 8 hours ago
On Monday's programme Vincent Duggleby will be putting your questions about saving and investing to a panel of experts. Many people are worse off than a ...

ABS CBN News
Oriental Peninsula stock collapse: another lesson in equity investing
ABS CBN News, Philippines - 13 hours ago
By JUDITH BALEA When an investor in the Philippine capital market loses a whopping 65 percent of the value of his or her investment over six months, ...

How to start investing in mutual funds
Sify, India - 11 hours ago
Look for a pure international play that includes investment in Japan. You should understand the distinction between these funds and global funds, ...

Europeans Retreat on Venture Investing
New York Times, United States - Aug 26, 2008
By CLAIRE CAIN MILLER European venture capitalists are investing less money in fewer companies, mirroring a trend seen in financing for American start-ups, ...
European VC Industry Continues to Flounder as Deal Volume Hits New ... MarketWatch
European Venture Capitalists Putting Less Money Into Fewer Deals New York Times
all 23 news articles

Gawker
Tech Won't Be a Safe Haven for Long
Seeking Alpha, NY - Aug 27, 2008
The most common adage amongst investing commentators and pundits is to go “against the crowd” or be “contrarian” with your investments. ...
Infrastructure investing: The long and short of it The Daily Deal (subscription)
all 4 news articles

Should Commodities be in Your Portfolio?
MarketWatch - 7 hours ago
"While it takes upward of $50000 to invest with a commodities trader, you can still participate by investing in commodity-related exchange-traded funds ...

Value Investing With Covered Calls: Visa, Mohawk
TheStreet.com - 22 hours ago
By now, readers know that I follow a value-based approach to investing. As such, rule No. 1 here is to preserve capital. Protect my downside and let the ...

TopNews
Investing in the Housing Crisis Aftermath: Stock Picks and Pans
Seeking Alpha, NY - Aug 27, 2008
Give this retailer some more time to get their financial feet back on solid ground before you consider investing. Let's leave the world of retail behind for ...
Barchart Morning Call Inside Futures
all 143 news articles

Basics Of Stock Investing Market
PR-USA.net (press release), Bulgaria - 1 hour ago
Those giving their first steps on the stock market investing have a free online guide made specially for beginners. Kind of Stock investing for dummies is ...

investing - Google News