Dumbest investment by Warren Buffett: Berkshire Hathaway
Showing posts with label avoiding mistakes. Show all posts
Showing posts with label avoiding mistakes. Show all posts
Saturday 14 May 2011
Friday 11 June 2010
Common Stock Market Mistakes
Common Stock Market Mistakes
Jun.02, 2010
Stock market trading can be an interesting way of building your wealth and can lead to a lot of interesting learning experiences. There are a few mistakes that most newbie’s tend to repeat over and over again which harm their returns.
The first mistake that people tend to make when investing into the stock market is watching the news. The only thing the news is good for is making you panic and bringing emotions into the mix. You don’t need to watch the news to be a great trader. In fact staying away from other opinions and trusting yourself can be a bonus in the market.
The news has the tendency of pushing your emotional button and makes you do foolish things that you will regret later on. Instead of making decisions based on fear and greed conduct your own research to see how strong a company is yourself and create a game plan for what qualifies as a good buy,
One other mistake that people tend to make is to second guess themselves. They may enter into a position for one reason but get out for a completely different reason and not follow their original game plan. This is not always a bad thing. If you got into a stock because it was a hot stock tip and you really had no reason to get into it in the first place, (which you should never do), then of course second guessing that decision is important.
But if you actually have a plan that is another story. If you bought a stock at $50 and planed to exit out at $65 or cut your losses short at $45 there is no point in getting out at $49 just because you are scared that you might actually lose more money. Create a plan and stick with it.
The last major mistake that people make is not limiting their losses. Having some plan on limiting your losses whether it be through diversification or stop losses and money management every successful market participant limits their losses.
If you work hard at it there is no limit to what you can do with the stock market. It can be a very powerful tool for creating wealth.
Jun.02, 2010
Stock market trading can be an interesting way of building your wealth and can lead to a lot of interesting learning experiences. There are a few mistakes that most newbie’s tend to repeat over and over again which harm their returns.
The first mistake that people tend to make when investing into the stock market is watching the news. The only thing the news is good for is making you panic and bringing emotions into the mix. You don’t need to watch the news to be a great trader. In fact staying away from other opinions and trusting yourself can be a bonus in the market.
The news has the tendency of pushing your emotional button and makes you do foolish things that you will regret later on. Instead of making decisions based on fear and greed conduct your own research to see how strong a company is yourself and create a game plan for what qualifies as a good buy,
One other mistake that people tend to make is to second guess themselves. They may enter into a position for one reason but get out for a completely different reason and not follow their original game plan. This is not always a bad thing. If you got into a stock because it was a hot stock tip and you really had no reason to get into it in the first place, (which you should never do), then of course second guessing that decision is important.
But if you actually have a plan that is another story. If you bought a stock at $50 and planed to exit out at $65 or cut your losses short at $45 there is no point in getting out at $49 just because you are scared that you might actually lose more money. Create a plan and stick with it.
The last major mistake that people make is not limiting their losses. Having some plan on limiting your losses whether it be through diversification or stop losses and money management every successful market participant limits their losses.
If you work hard at it there is no limit to what you can do with the stock market. It can be a very powerful tool for creating wealth.
Wednesday 14 April 2010
Handling Mistakes and Bad Luck
Everyone makes mistakes, and bad luck strikes everywhere.
There is not much you can do about bad luck except to diversify and shy away from huge risks.
When you do make mistakes, take the time to ponder them and find ways to avoid making the same ones again.
There is not much you can do about bad luck except to diversify and shy away from huge risks.
When you do make mistakes, take the time to ponder them and find ways to avoid making the same ones again.
Wednesday 20 January 2010
5 Dumb Investing Mistakes to Avoid
5 Dumb Investing Mistakes to Avoid
by Gary Belsky | Jan 19, 2010
In his newly revised book, Why Smart People Make Big Money Mistakes and How to Correct Them, co-author Gary Belsky says irrational behavior often leads us to make dumb and costly financial decisions. In this excerpt, Belsky reveals the investing secrets that will help you avoid such goofs.
We all commit financial follies that cost us hundreds or thousands of dollars each year. Worse, we’re often blissfully ignorant of the causes of our monetary missteps and clueless about how to correct them. But by knowing these five big investing mistakes, you can change your behavior to put more money in your pocket.
1. Letting Losses Hurt More Than Gains Please You
People generally are “loss averse.” The pain felt from losing $100 is much greater than the pleasure from gaining the same amount. That’s why people behave inconsistently when it comes to taking investment risks. You might act conservatively to protect gains (by selling your winners to guarantee the profits) but act recklessly to avoid losses (by holding onto losers, hoping they’ll bounce back). Loss aversion causes some investors to sell all their holdings during periods of market turmoil, but trying to time the market doesn’t work in the long run.
2. Placing Too Much Emphasis on Unusual Events
Many people still recall the stock market crash of 2008 with anxiety, forgetting that stocks have offered the most consistent investment gains over time. As MoneyWatch blogger Nathan Hale has written, investors often pour money into mutual funds that performed well recently on the mistaken belief that the funds’ success is the result of something other than dumb luck.
3. Being Paralyzed by Investment Choices
You can’t let yourself get so overwhelmed by a surfeit of options that you penalize your finances through inaction. Some people won’t move money out of ultra-conservative, low-yielding retirement funds because they can’t bear having to select a better alternative. So limit your choices. Find “trusted screeners” whose judgment you admire to pare down your choices or even make them for you.
4. Ignoring the ‘Small’ Numbers
People have a tendency to ignore what they think are insignificant numbers, such as mutual fund expenses. But doing so can have a deleterious effect of surprising magnitude on your investment returns over time. On a $10,000 investment, an expense ratio of 0.5 percent might cost you about $180 over three years, but a 1.5 percent expense tab could nick you by $500 or so. Over 15 years, a low-expense fund might eat up less than 7 percent of your potential investment return, while a high-expense fund could devour almost 20 percent.
5. Failing to Understand the Odds against Beating the Market
Most investors will fare best by sticking primarily with index funds mirroring the averages. You won’t just keep up with the typical investor this way; you’ll likely do better than all those brave souls who think they can beat the law of averages. High transaction and management expenses, faulty psychology, and the law of averages often burden actively managed portfolios. Index funds take much of the emotion out of investing. And the most successful investors are the ones who don’t let emotions affect their decisions.
From Why Smart People Make Big Money Mistakes and How to Correct Them by Gary Belsky & Thomas Gilovich. Copyright 1999, 2009, by Gary Belsky and Thomas Gilovich. Reprinted by permission of Simon & Schuster, Inc.
http://moneywatch.bnet.com/investing/article/investing-5-dumb-mistakes-to-avoid/384546/
by Gary Belsky | Jan 19, 2010
We all commit financial follies that cost us hundreds or thousands of dollars each year. Worse, we’re often blissfully ignorant of the causes of our monetary missteps and clueless about how to correct them. But by knowing these five big investing mistakes, you can change your behavior to put more money in your pocket.
1. Letting Losses Hurt More Than Gains Please You
People generally are “loss averse.” The pain felt from losing $100 is much greater than the pleasure from gaining the same amount. That’s why people behave inconsistently when it comes to taking investment risks. You might act conservatively to protect gains (by selling your winners to guarantee the profits) but act recklessly to avoid losses (by holding onto losers, hoping they’ll bounce back). Loss aversion causes some investors to sell all their holdings during periods of market turmoil, but trying to time the market doesn’t work in the long run.
2. Placing Too Much Emphasis on Unusual Events
Many people still recall the stock market crash of 2008 with anxiety, forgetting that stocks have offered the most consistent investment gains over time. As MoneyWatch blogger Nathan Hale has written, investors often pour money into mutual funds that performed well recently on the mistaken belief that the funds’ success is the result of something other than dumb luck.
3. Being Paralyzed by Investment Choices
You can’t let yourself get so overwhelmed by a surfeit of options that you penalize your finances through inaction. Some people won’t move money out of ultra-conservative, low-yielding retirement funds because they can’t bear having to select a better alternative. So limit your choices. Find “trusted screeners” whose judgment you admire to pare down your choices or even make them for you.
4. Ignoring the ‘Small’ Numbers
People have a tendency to ignore what they think are insignificant numbers, such as mutual fund expenses. But doing so can have a deleterious effect of surprising magnitude on your investment returns over time. On a $10,000 investment, an expense ratio of 0.5 percent might cost you about $180 over three years, but a 1.5 percent expense tab could nick you by $500 or so. Over 15 years, a low-expense fund might eat up less than 7 percent of your potential investment return, while a high-expense fund could devour almost 20 percent.
5. Failing to Understand the Odds against Beating the Market
Most investors will fare best by sticking primarily with index funds mirroring the averages. You won’t just keep up with the typical investor this way; you’ll likely do better than all those brave souls who think they can beat the law of averages. High transaction and management expenses, faulty psychology, and the law of averages often burden actively managed portfolios. Index funds take much of the emotion out of investing. And the most successful investors are the ones who don’t let emotions affect their decisions.
From Why Smart People Make Big Money Mistakes and How to Correct Them by Gary Belsky & Thomas Gilovich. Copyright 1999, 2009, by Gary Belsky and Thomas Gilovich. Reprinted by permission of Simon & Schuster, Inc.
http://moneywatch.bnet.com/investing/article/investing-5-dumb-mistakes-to-avoid/384546/
Friday 15 January 2010
How to Fail at Investing in 5 Easy Steps
How to Fail at Investing in 5 Easy Steps
By Morgan Housel
January 14, 2010 | Comments (1)
I'm a fan of checklists. Especially the ones listing things you shouldn't be doing. It's easier to overlook what you shouldn't be doing than to focus on what you think you're doing right. If you're not humble enough to admit this, you've just proven the point accurate.
One such list I came across resides in Philip Fisher's groundbreaking 1958 book, Common Stocks and Uncommon Profits. Who is Philip Fisher? You could ask Warren Buffett, who admits, "I'm 15 percent Fisher and 85 percent Benjamin Graham." Ben Graham is Buffett's well-known, highly praised, mentor. Philip Fisher, a sort of godfather of growth investing, doesn't get enough credit.
Common Stocks and Uncommon Profits is one of the best guides for evaluating businesses ever written. Buried in the back of the book, right after "Five Don'ts for Investors," is "Five More Don't for Investors." It's quite simple. To fail at investing …
1. Overstress diversification
Diversification is usually a good thing, but Fisher cautions against blind diversification. In his own words, "Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much in others about which they know nothing at all."
Far too many investors approach diversification with the mindset of, "I need financials. I need tech. I need telecom. I need healthcare," etc., etc. Wrong. What you need is diversification among good, high-quality companies, not a blind selection among diverse sectors. Let me give you an example of a "diverse" portfolio gone astray:
Financials: Lehman Brothers
Telecom: WorldCom
Energy: Enron
Industrials: General Motors
Technology: GlobalCrossing
These are obviously cherry-picked. But you can see how, in an attempt to blindly diversify among sectors, you can just as easily concentrate in failure. Even slight diversification among good companies that you understand can be superior to blind, yet broad, diversification.
2. Be afraid of buying on a war scare
Fisher writes, "The fears of mass destruction of property, almost confiscatory higher taxes, and government interference with business dominate what thinking we try to do on financial matters. People operating in such a mental climate are inclined to overlook some even more fundamental economic influences."
In short, don't be scared of investing in wartime. Some might even say: Buy on the cannons, sell on the trumpets.
Fisher's more direct point regards war's ability to spread inflation through increased government spending. Again, that's quite analogous to today. "Modern war always causes governments to spend far more than they can possibly collect from their taxpayers while the war is being waged. This causes a vast increase in the amount of money … the classic form of inflation."
But rather than sell in panic, "This is the time when having surplus cash for investment becomes least, not most, desirable."
Bingo. If you're scared witless over today's policies, and many are, cash isn't your answer. There are several very high-quality companies that derive enormous revenue from abroad, enabling success in the face of ravaging domestic inflation. Philip Morris International (NYSE: PM), Coca-Cola (NYSE: KO), and Johnson & Johnson (NYSE: JNJ) are three such examples.
3. Forget your Gilbert and Sullivan
"The flowers that bloom in the spring, tra-la, have nothing to do with the case." This Gilbert and Sullivan tune confused me, too. Fisher's analogous takeaway from the example is that "there are certain superficial financial statistics which are frequently given an underserved degree of attention by many investors."
His examples include focusing on past share performance and previous years' earnings. "One reason [investors are] fed such a diet of back statistics is that if this type of material is put in a report it is not hard to be sure it is correct" he writes.
Another set of data investors give undue focus to is quarterly earnings. Lehman Brothers was announcing record quarterly earnings not much over a year before it went kablooey. Ford (NYSE: F), Citigroup (NYSE: C), and Bank of America (NYSE: BAC) announced abysmal earnings in the process of becoming multibaggers last year. The underlying value of company's shares can be far disconnected from their short-term reported earnings.
4. Fail to consider time as well as price
"When the indications are strong that [rapid growth] is coming, deciding the time you will buy rather than the price at which you will buy may bring you a stock about to have extreme further growth at or near the lowest price at which that stock will sell from that time on."
This is a hard point to understand, but Fisher apparently studied companies' prices and found they were normally lower at certain points in their business cycle -- say, about a month before a venture reaches the pilot-plant stage. I finally equated it to Buffett's rule that, "if you wait for the robins, spring will be over." Waiting for Apple (Nasdaq: AAPL) to actually release a new product like the iPhone, for example, means undoubtedly foregoing the gains that anticipation has priced in.
5. Follow the crowd
Around 2000, top-selling books included Dow 36,000 and The Roaring 2000s. Whoops. In 2006, Why the Real Estate Boom Will Not Bust was a big hit. As of late, top-sellers have included The Great Depression Ahead and The Ultimate Depression Survival Guide.
Pandering to fear and exuberance at or near the peak is nothing new. That's when it's most prevalent. That's when it sells the most. But if the history of the outcome of these extreme views is any indication, you might find optimism in visiting the business section of your local bookstore. More often than not, popular yet awe-inspiring views are dead wrong.
Tying it all together
These are five useful tips for failing at investing. Please don't follow them. Truly triumphant investing means binding together hundreds of factors successfully.
http://www.fool.com/investing/general/2010/01/14/how-to-fail-at-investing-in-5-easy-steps.aspx
By Morgan Housel
January 14, 2010 | Comments (1)
I'm a fan of checklists. Especially the ones listing things you shouldn't be doing. It's easier to overlook what you shouldn't be doing than to focus on what you think you're doing right. If you're not humble enough to admit this, you've just proven the point accurate.
One such list I came across resides in Philip Fisher's groundbreaking 1958 book, Common Stocks and Uncommon Profits. Who is Philip Fisher? You could ask Warren Buffett, who admits, "I'm 15 percent Fisher and 85 percent Benjamin Graham." Ben Graham is Buffett's well-known, highly praised, mentor. Philip Fisher, a sort of godfather of growth investing, doesn't get enough credit.
Common Stocks and Uncommon Profits is one of the best guides for evaluating businesses ever written. Buried in the back of the book, right after "Five Don'ts for Investors," is "Five More Don't for Investors." It's quite simple. To fail at investing …
1. Overstress diversification
Diversification is usually a good thing, but Fisher cautions against blind diversification. In his own words, "Investors have been so oversold on diversification that fear of having too many eggs in one basket has caused them to put far too little into companies they thoroughly know and far too much in others about which they know nothing at all."
Far too many investors approach diversification with the mindset of, "I need financials. I need tech. I need telecom. I need healthcare," etc., etc. Wrong. What you need is diversification among good, high-quality companies, not a blind selection among diverse sectors. Let me give you an example of a "diverse" portfolio gone astray:
Financials: Lehman Brothers
Telecom: WorldCom
Energy: Enron
Industrials: General Motors
Technology: GlobalCrossing
These are obviously cherry-picked. But you can see how, in an attempt to blindly diversify among sectors, you can just as easily concentrate in failure. Even slight diversification among good companies that you understand can be superior to blind, yet broad, diversification.
2. Be afraid of buying on a war scare
Fisher writes, "The fears of mass destruction of property, almost confiscatory higher taxes, and government interference with business dominate what thinking we try to do on financial matters. People operating in such a mental climate are inclined to overlook some even more fundamental economic influences."
In short, don't be scared of investing in wartime. Some might even say: Buy on the cannons, sell on the trumpets.
Fisher's more direct point regards war's ability to spread inflation through increased government spending. Again, that's quite analogous to today. "Modern war always causes governments to spend far more than they can possibly collect from their taxpayers while the war is being waged. This causes a vast increase in the amount of money … the classic form of inflation."
But rather than sell in panic, "This is the time when having surplus cash for investment becomes least, not most, desirable."
Bingo. If you're scared witless over today's policies, and many are, cash isn't your answer. There are several very high-quality companies that derive enormous revenue from abroad, enabling success in the face of ravaging domestic inflation. Philip Morris International (NYSE: PM), Coca-Cola (NYSE: KO), and Johnson & Johnson (NYSE: JNJ) are three such examples.
3. Forget your Gilbert and Sullivan
"The flowers that bloom in the spring, tra-la, have nothing to do with the case." This Gilbert and Sullivan tune confused me, too. Fisher's analogous takeaway from the example is that "there are certain superficial financial statistics which are frequently given an underserved degree of attention by many investors."
His examples include focusing on past share performance and previous years' earnings. "One reason [investors are] fed such a diet of back statistics is that if this type of material is put in a report it is not hard to be sure it is correct" he writes.
Another set of data investors give undue focus to is quarterly earnings. Lehman Brothers was announcing record quarterly earnings not much over a year before it went kablooey. Ford (NYSE: F), Citigroup (NYSE: C), and Bank of America (NYSE: BAC) announced abysmal earnings in the process of becoming multibaggers last year. The underlying value of company's shares can be far disconnected from their short-term reported earnings.
4. Fail to consider time as well as price
"When the indications are strong that [rapid growth] is coming, deciding the time you will buy rather than the price at which you will buy may bring you a stock about to have extreme further growth at or near the lowest price at which that stock will sell from that time on."
This is a hard point to understand, but Fisher apparently studied companies' prices and found they were normally lower at certain points in their business cycle -- say, about a month before a venture reaches the pilot-plant stage. I finally equated it to Buffett's rule that, "if you wait for the robins, spring will be over." Waiting for Apple (Nasdaq: AAPL) to actually release a new product like the iPhone, for example, means undoubtedly foregoing the gains that anticipation has priced in.
5. Follow the crowd
Around 2000, top-selling books included Dow 36,000 and The Roaring 2000s. Whoops. In 2006, Why the Real Estate Boom Will Not Bust was a big hit. As of late, top-sellers have included The Great Depression Ahead and The Ultimate Depression Survival Guide.
Pandering to fear and exuberance at or near the peak is nothing new. That's when it's most prevalent. That's when it sells the most. But if the history of the outcome of these extreme views is any indication, you might find optimism in visiting the business section of your local bookstore. More often than not, popular yet awe-inspiring views are dead wrong.
Tying it all together
These are five useful tips for failing at investing. Please don't follow them. Truly triumphant investing means binding together hundreds of factors successfully.
http://www.fool.com/investing/general/2010/01/14/how-to-fail-at-investing-in-5-easy-steps.aspx
Friday 1 January 2010
Avoiding Mistakes is the Most Profitable Strategy of All
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.
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.
Friday 18 December 2009
Mistakes to avoid in the next stock market rally
Mistakes to avoid in the next stock market rally
Mon Jun 8, 2009 9:48am
So many of us made investing mistakes and suffered over the last 18 months.
Everyone makes mistakes….but really smart people learn from their own mistakes and those that other people make. If this is indeed the start of a new upcycle, then now is the best time to review what went wrong the last time so that we do not repeat the same mistakes again.
Read more and get smarter….
1. Don’t be unrealistically optimistic: Markets can come down as well – don’t believe the cheerleaders who only give you the positive picture of markets going up.
Be very suspicious of the so-called experts on TV who are “confident” that a stock or the market will go up. If they are such geniuses, why did they not warn you 18 months ago that the market would go down by about 60%?
Be cautious about any predictions you hear from so-called “Gurus” on the direction of the market, don’t blindly trust what they say. Most “Gurus” have a poor track record.
2. Understand your risk appetite – you cannot get high rewards without taking on high risk: Not all investments are suitable for you, because they might be too risky for your risk profile. There are no get rich quick schemes – the stock market is not a casino, it takes patience, skill and experience to achieve superior returns. If someone promises to double your money in 3 years, be very suspicious.
If you lost money in the last few quarters and were emotional about it, recognize that some of it was your own fault for investing in instruments that were too risky for you to handle. Avoid these in the future, even if the market is racing to the top.
3. There is no substitute for quality: Invest in good quality stocks or mutual funds. Don’t speculate. In a bear market, the speculative names are the ones that fall the fastest. Build your portfolio on a strong foundation. The newest NFOs might not be the safest things for you to invest in, because they are untried and untested.
Its best to be safe and to invest in high quality names. Don’t take a punt on some random tip on a company that has no track record or history of quality performance.
4. Don’t invest blindly – invest towards meeting your financial goals: Don’t just believe what your friends or neighbours are telling you about their investments, these investments might not be suitable for you. Invest because you have a certain goal in mind such as planning for your retirement, or buying a house, saving for your daughter’s wedding or son’s overseas education. This will help you match the right investment product with the right goal.
Everyone wants a return on their investments, but that is not the reason to invest. You invest because you want to do something with the money – marry your daughter, buy a house, plan your retirement. Ensure your investments are allowing you to meet these goals.
5. You cannot successfully time the market: If you believe that you can sell at the top and buy at the bottom, we hate to break this to you but you are not a genius. Its never been done successfully by even the world’s leading investors, so don’t try this strategy at home!
No “Guru” predicted that the market would go up in May 2009 by close to 30%, and not many people were able to time this rise successfully, just like not many people were able to exit the market successfully when the markets first started correcting. Invest regularly but don’t try to pick bottoms and tops.
http://in.reuters.com/article/personalFinance/idINIndia-40003320090608?sp=true
Mon Jun 8, 2009 9:48am
So many of us made investing mistakes and suffered over the last 18 months.
Everyone makes mistakes….but really smart people learn from their own mistakes and those that other people make. If this is indeed the start of a new upcycle, then now is the best time to review what went wrong the last time so that we do not repeat the same mistakes again.
Read more and get smarter….
1. Don’t be unrealistically optimistic: Markets can come down as well – don’t believe the cheerleaders who only give you the positive picture of markets going up.
Be very suspicious of the so-called experts on TV who are “confident” that a stock or the market will go up. If they are such geniuses, why did they not warn you 18 months ago that the market would go down by about 60%?
Be cautious about any predictions you hear from so-called “Gurus” on the direction of the market, don’t blindly trust what they say. Most “Gurus” have a poor track record.
2. Understand your risk appetite – you cannot get high rewards without taking on high risk: Not all investments are suitable for you, because they might be too risky for your risk profile. There are no get rich quick schemes – the stock market is not a casino, it takes patience, skill and experience to achieve superior returns. If someone promises to double your money in 3 years, be very suspicious.
If you lost money in the last few quarters and were emotional about it, recognize that some of it was your own fault for investing in instruments that were too risky for you to handle. Avoid these in the future, even if the market is racing to the top.
3. There is no substitute for quality: Invest in good quality stocks or mutual funds. Don’t speculate. In a bear market, the speculative names are the ones that fall the fastest. Build your portfolio on a strong foundation. The newest NFOs might not be the safest things for you to invest in, because they are untried and untested.
Its best to be safe and to invest in high quality names. Don’t take a punt on some random tip on a company that has no track record or history of quality performance.
4. Don’t invest blindly – invest towards meeting your financial goals: Don’t just believe what your friends or neighbours are telling you about their investments, these investments might not be suitable for you. Invest because you have a certain goal in mind such as planning for your retirement, or buying a house, saving for your daughter’s wedding or son’s overseas education. This will help you match the right investment product with the right goal.
Everyone wants a return on their investments, but that is not the reason to invest. You invest because you want to do something with the money – marry your daughter, buy a house, plan your retirement. Ensure your investments are allowing you to meet these goals.
5. You cannot successfully time the market: If you believe that you can sell at the top and buy at the bottom, we hate to break this to you but you are not a genius. Its never been done successfully by even the world’s leading investors, so don’t try this strategy at home!
No “Guru” predicted that the market would go up in May 2009 by close to 30%, and not many people were able to time this rise successfully, just like not many people were able to exit the market successfully when the markets first started correcting. Invest regularly but don’t try to pick bottoms and tops.
http://in.reuters.com/article/personalFinance/idINIndia-40003320090608?sp=true
Sunday 15 November 2009
Avoiding Bad Stock
Avoiding Bad Stock
Most investors often fall in the simple trap of believing someone who tells them that a particular stock represents the next winning bet. However, you should be very cautious when examining the possibility of investing in such a "promising" stock.
1. An example of a great looking stock is the one that looks absolutely healthy from the outside, but it is usually hollow and unprofitable in its core. Most investors that are attracted by these shiny stocks eventually find out that the companies that have issued them are not profitable and financially sustainable. These stocks are easily forgotten after a short period of time.
2. Another example of a bad stock is the one that is tied to the cycles of the business. This means that its price is very vulnerable to the changing cycles of the market. If you purchase the stock at a time when its price was high (due to high demand), you will soon end up with a worthless stock because of the changed cycle of the market.
3. Sometimes a stock may be really very profitable and a viable investment. However, you have entered the game too late at a point where the market has increased the price of the stock to a high level. No matter how good the stock may be if you buy high you will soon feel the losses.
Making the Right Investment Decision
In order to make a successful investment decision you should first of all select a company that has a reliable business. Additionally, the company should prove that it has good prospects for success in terms of growth.
Second, you should be able to find a price that coincides with the current state of the company and its future position. You should make a reasonable evaluation in order to avoid paying more than the company is really worth.
In order to determine the current and future value of the company's stock, you can refer to one or several of the many formulas for this purpose. However, you should not fully rely on them and try to develop your common sense feelings in order to pick the stocks that best meet your financial goals.
When you start the stock selection process take your time. Don't be too impatient and if a stock doesn't look very viable don't invest in it. There are plenty of other opportunities in which you can invest your hard-earned money. Analyze all the alternative investments and select the one that best meets your needs and goals.
Remember that you should try to avoid the described above bad stocks, which only look profitable but are financially hollow. Additionally, the best way not to lose your money is to invest reasonably and cautiously by analyzing every opportunity before jumping into it.
http://www.stock-market-investors.com/stock-market-advices-and-tips/avoiding-bad-stock.html
Most investors often fall in the simple trap of believing someone who tells them that a particular stock represents the next winning bet. However, you should be very cautious when examining the possibility of investing in such a "promising" stock.
1. An example of a great looking stock is the one that looks absolutely healthy from the outside, but it is usually hollow and unprofitable in its core. Most investors that are attracted by these shiny stocks eventually find out that the companies that have issued them are not profitable and financially sustainable. These stocks are easily forgotten after a short period of time.
2. Another example of a bad stock is the one that is tied to the cycles of the business. This means that its price is very vulnerable to the changing cycles of the market. If you purchase the stock at a time when its price was high (due to high demand), you will soon end up with a worthless stock because of the changed cycle of the market.
3. Sometimes a stock may be really very profitable and a viable investment. However, you have entered the game too late at a point where the market has increased the price of the stock to a high level. No matter how good the stock may be if you buy high you will soon feel the losses.
Making the Right Investment Decision
In order to make a successful investment decision you should first of all select a company that has a reliable business. Additionally, the company should prove that it has good prospects for success in terms of growth.
Second, you should be able to find a price that coincides with the current state of the company and its future position. You should make a reasonable evaluation in order to avoid paying more than the company is really worth.
In order to determine the current and future value of the company's stock, you can refer to one or several of the many formulas for this purpose. However, you should not fully rely on them and try to develop your common sense feelings in order to pick the stocks that best meet your financial goals.
When you start the stock selection process take your time. Don't be too impatient and if a stock doesn't look very viable don't invest in it. There are plenty of other opportunities in which you can invest your hard-earned money. Analyze all the alternative investments and select the one that best meets your needs and goals.
Remember that you should try to avoid the described above bad stocks, which only look profitable but are financially hollow. Additionally, the best way not to lose your money is to invest reasonably and cautiously by analyzing every opportunity before jumping into it.
http://www.stock-market-investors.com/stock-market-advices-and-tips/avoiding-bad-stock.html
Sunday 13 September 2009
Why Buffett is top in the financial world of investing?
If you understand the rules of the loser's games, you have taken a critical first step toward success in investments.
Warren Buffett sits atop the financial world because he made the fewest mistakes over his 40-year career. His most common mistakes, he admits, are "sins of omission," in which he
They are simply lost opportunities.
Avoiding losses is probably the most important tool for long-term success in investing. No investor, even Buffett, can avoid periodic losses on individual stocks.
What differentiates Buffett from nearly all other investors is his ability to avoid yearly losses in his entire portfolio.
Warren Buffett sits atop the financial world because he made the fewest mistakes over his 40-year career. His most common mistakes, he admits, are "sins of omission," in which he
- failed to buy a stock that rallied, or
- sold a stock too soon.
They are simply lost opportunities.
Avoiding losses is probably the most important tool for long-term success in investing. No investor, even Buffett, can avoid periodic losses on individual stocks.
What differentiates Buffett from nearly all other investors is his ability to avoid yearly losses in his entire portfolio.
The Benefits of Avoiding Mistakes
1. A typical investor who spreads his or her money over a basket of stocks can expect to achieve 10 to 12 percent annualized gains over great periods.
2. The same investor who focuses on the types of stocks Buffett owns - Coca-Cola, Gillette, Capital Cities, Wells Fargo, etc. - could expect to gain perhaps a few percentage points more each year. These stocks have shown a tendency to outperform the market over long periods because they exhibited growth rates greater than the average US corporation.
3. A shrewd, full time investor who focussed on Buffett-like stocks and made sure to buy them at wonderfully cheap prices could add a couple of extra percentage points of gain a year.
But the combined effects of these strategies still don't come close to producing the 33 percent compounded annual gain Buffett attained between the mid-1950s and the late 1990s.
Peter Lynch's managed the Magellan Fund. He bought and sold common stocks like the rest of us, including many of the same types of stocks you probably placed in your own portfolio.
Why, then, did Lynch and Buffett attain vastly superior results? There's got to be more to the story.
We tend to overlook the fact that the success of investors such as Lynch and Buffett derived from thousands of critical decisions they made over the course of decades, many of which were made on the fly; but the majority of which were correct.
In our quest to find shortcut answers to how they did it, we tend to look at only the beginning - that Buffett started with $100 - and at the end - his $30 billion fortune and dismiss the daily rituals that got him from point A to point B. Those rituals, however, are what pushed Buffett's returns well above those of the crowd.
"If everybody had seen what he had seen, he wouldn't have made huge gains from his visions," Forbes magazine once wrote.
2. The same investor who focuses on the types of stocks Buffett owns - Coca-Cola, Gillette, Capital Cities, Wells Fargo, etc. - could expect to gain perhaps a few percentage points more each year. These stocks have shown a tendency to outperform the market over long periods because they exhibited growth rates greater than the average US corporation.
3. A shrewd, full time investor who focussed on Buffett-like stocks and made sure to buy them at wonderfully cheap prices could add a couple of extra percentage points of gain a year.
But the combined effects of these strategies still don't come close to producing the 33 percent compounded annual gain Buffett attained between the mid-1950s and the late 1990s.
Peter Lynch's managed the Magellan Fund. He bought and sold common stocks like the rest of us, including many of the same types of stocks you probably placed in your own portfolio.
Why, then, did Lynch and Buffett attain vastly superior results? There's got to be more to the story.
We tend to overlook the fact that the success of investors such as Lynch and Buffett derived from thousands of critical decisions they made over the course of decades, many of which were made on the fly; but the majority of which were correct.
In our quest to find shortcut answers to how they did it, we tend to look at only the beginning - that Buffett started with $100 - and at the end - his $30 billion fortune and dismiss the daily rituals that got him from point A to point B. Those rituals, however, are what pushed Buffett's returns well above those of the crowd.
"If everybody had seen what he had seen, he wouldn't have made huge gains from his visions," Forbes magazine once wrote.
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