Learn the seven easily avoidable mistakes that many investors frequently make. If you steer clear of these, you will start out ahead of the pack. Resisting these temptations is the first step to reaching your financial goals:
1. Swinging for the fences
Don't try to shoot for big gains by finding the next Microsoft. Instead focus on finding solid companies with shares selling at low valuations.
2. Believing that it's different this time
Understanding the market 's history can help you avoid repeated pitfalls. If people try to convince you that "it really is different this time," ignore them.
3. Falling in love with products
Don't fall into the all-too-frequent trap of assuming that a great product translates into a high-quality company. Before you get swept away by exciting new technology or a nifty product, make sure you've checked out the company's business model.
4. Panicking when the market is down
Don't be afraid to use fear to your advantage. The best time to buy is when everyone else is running away from a given asset class.
5. Trying to time the market
Attempting to time the market is a fool's game. There's ample evidence that the market can't be timed.
6. Ignoring valuation
The best way to reduce your investment risk is to pay careful attention to valuation. Don't make the mistake of hoping that other investors will keep paying higher prices, even if you're buying shares in a great company.
7. Relying on earnings for the whole story
Cash flow is the true measure of a company's financial performance, not reported earnings per share.
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