1. Failure to diversify
2. Paying too much for a stock
3. Buying a stock with a high payout ratio*
4. Too much trading
5. Failure to read the company's quarterly and annual reports
6. Failure to invest in stocks after a long decline
7. Failure to keep adequate records (recordkeeping)**
*Stock with high payout ratio
Most companies need to invest their retained earnings to grow their business.
A low payout ratio is preferred, since it means that the company is plowing back its profits into future growth.
Examine what percentage of earnings per share are paid out in dividend. For instance:
- if the company earns $4 a share and pays out $3, that's too much.
- most would much prefer a company that paid out less than 50% - 30 or 40% would be even better.
Companies that don't pay a dividend at all are often very speculative. They can be extremely volatile.
Recordkeeping**
This is a common blunder. You should have a filing cabinet that holds a folder for each stock.
The first thing you should put in that file is the confirmation slip for the purchase of the stock, which should have been sent to you by your broker.
Then when you sell the stock, you will know what you paid for it so that you can tell your accountant. He will in turn tell the IRS.
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