Showing posts with label common financial mistakes. Show all posts
Showing posts with label common financial mistakes. Show all posts

Saturday 30 June 2012

The 100 Things I've Learned in Investing


As you'll see in No. 47 on my list, it's very important to step back and gain perspective. In an attempt to stop making the same mistakes over and over, here's my attempt to codify the 100 lessons I've learned in my investing career so far.
1. Most of this list is dedicated to insight on beating the market, but know this: It's darn hard to beat the market. Ninety-nine percent of people are best served steadily buying and holding low-cost index funds at the core of their portfolios -- and I may be understating that 99% figure.
2. Looking for a one-stop index-fund core? For a very reasonable 0.2% in fees a year,Vanguard target date retirement funds will automatically diversify and balance the stock and bond portions of your portfolio -- just pick your retirement date. The Vanguard family of index funds is what I recommend to just about everyone who asks.
3. Being contrarian doesn't just mean doing the opposite. The "contrarian" street-crosser gets run over by a truck.
4. In any financial matter, find out what the other person's incentives are. Discount accordingly.
5. Even a gut investment call should have some numbers to back it up.
6. Mistakes made in your 20s are better than mistakes in your 50s. Mistakes involving $100 are better than mistakes involving $100,000.
7. My all-time favorite Warren Buffett quote: "We like things that you don't have to carry out to three decimal places. If you have to carry them out to three decimal places, they're not good ideas."
8. Never buy stocks on margin, no matter how "can't miss" the opportunity is. That blend of leverage and arrogance is exactly what gets Wall Street in trouble. The difference is that we're not too big to fail.
9. Don't waste time mastering things that simply don't work (see lessons 10 through 12).
10. Example No. 1: day trading. Like playing roulette, you'll have some victories, and you may be able to fool yourself into thinking you're skillful. The house just hopes you keep playing.
11. Example No. 2: technical analysis. The only chart pattern worth noting is the jagged, but likely downward-sloping line of your savings if you follow this technique.
12. Example No. 3: leveraged ETFs. Bastardized ETFs like the Direxion Daily Financial Bull 3X (NYSE: FAS  ) are another great way to lose money. Even if you guess right on direction, the mathematics of the daily reckoning mean these instruments are long-term losers.
13. Stock stories about growth potential (e.g., tech stocks) are sexier than stock stories about track record (e.g., consumer goods stocks). Only the latter are verifiable today, though.
14. Having a strong opinion (let alone acting on it) is overrated. Knowing 20 stocks cold beats being able to challenge Jim Cramer in the lightning round.
15. Albert Einstein allegedly declared compound interest "the most powerful force in the universe." High-interest credit card debt aims that force at your wallet. To get compound interest pointed in the right direction, save (and invest) early and often!
16. A casino makes us use chips in lieu of cash, partially because we forget that the chips represent real money. Stocks may act in screwy ways and invite us to play games, but as investors we can't lose sight of the fact that stocks represent real companies. As Peter Lynch puts it using a different gambling analogy, "Although it's easy to forget sometimes, a share is not a lottery ticket ... it's part-ownership of a business."
17. When talking to other investors, have your BS detector handy. When you hear their "big fish" stories, know that their brilliant track records likely have more to do with selective memory and poor scorekeeping than skill.
18. A great Buffett reason not to fudge our taxes: "We'll never risk what we have for what we don't have and don't need."
19. Those who know what they're doing make complexity seem simple. Folks who don't (or are trying to sell you something) make simplicity complex.
20. A clear sign of the latter: jargon.
21. Asset allocation is more important than stock picking. A silly example: Say you're holding a race among five horses and five human beings. Many investors spend their time trying to rank the five human beings, when they're better off just betting on the five horses.
22. If you don't understand it, don't buy it until you do.
23. Sigh -- hard work is required to beat the market. Per Peter Lynch: "The person that turns over the most rocks wins the game. And that's always been my philosophy."
24. On the plus side, the results of hard work can be breathtaking. In his book Outliers, Malcolm Gladwell gives example after example of people we term "geniuses" who are really hyper-dedicated people who work at their craft relentlessly. Among the examples he uses are Bill Gates and the Beatles. He argues that both got to where they got because of the opportunity (and inclination) to hone their skills for 10,000 hours. That's the equivalent of five full years of work -- or 1,000 weeks of practicing 10 hours a week.
Gates had access to an ultra-high-end computer terminal because his exclusive middle school started a computer club. In high school, his access went up a notch as he gained access to the computers at the University of Washington. He talks of getting 20 to 30 hours of programming time in each weekend. On weeknights, he'd slip out of his house to take advantage of the open time-sharing slots from 3 a.m. to 6 a.m. And the Beatles were just as obsessed. By the time they broke out on the Ed Sullivan show in 1964, the Beatles had played an estimated 1,200 shows, some lasting eight hours!
25. None of the time spent checking and rechecking Yahoo! Finance portfolios counts toward those 10,000 hours. And here's the real kick in the groin: 10,000 hours is a prerequisite for mastery -- not a guarantee.
26. Common sense is as uncommon in investing as it is in real life.
27. One of my favorite lessons from the poker table: Action is overrated. The best players (and investors) are constantly weighing the opportunities, but rarely are they moved to act.
28. A similar sentiment by Vanguard founder Jack Bogle: "Time is your friend; impulse is your enemy."
29. Selling is overrated. Reason No. 1: We often sell potential multibagger winners that would more than make up for our losers. The greater the quality of the business, the greater the danger of selling too early.
30. Selling is overrated. Reason No. 2: Outside of retirement accounts, selling kicks in voluntary taxes.
31. Selling is overrated. Reason No. 3: Fees.
32. In the hands of a good storyteller, almost every stock looks like a winner. Assume you're not hearing the whole story.
33. A question to ask before buying a stock: "What's my competitive advantage on this stock? Do I really know something the market doesn't?" The more specific the advantage, the better.
35. Most of us are too enamored with "so you're saying there's a chance" opportunities. A Hail Mary belongs on the gridiron or in the pew -- not in the brokerage account.
36. A great rule of thumb for buying a house (the biggest single investment most of us will ever make), from fellow Fool Buck Hartzell back in 2005: "If a home is selling for 150 times the monthly rent (or less), it's generally a good deal. If it's selling for more than 200 times the monthly rent of a comparable property, you're better off renting."
37. One of the toughest facts about investing is that a proper track record takes decades. Charlatans can do quite well for years and years. This is potentially dangerous for our assessment of ourselves and of others. Focusing on process, rather than results, helps.
38. Price matters. A great company can be a great big loss for you if you pay too much.
39. When applicable, use the tax system to your advantage. Retirement accounts like 401(k)s and IRAs can be huge boons.
40. It is twice as easy to sound intelligent being pessimistic about the future as it is being optimistic.
41. Greater risk theoretically yields greater reward, but a stupid investment is just a stupid investment.
42. Sir John Templeton's quote: "'This time it's different' are the four most expensive words in the investing language." The details change, but the basic storylines remain the same.
43. Investing shouldn't be improv. Take the time to write a thoughtful script.
44. A key Buffett quote to understand: "Time is the friend of the wonderful company, the enemy of the mediocre." Why is this so? Partially because "you only find out who is swimming naked when the tide goes out." I really struggle to abide by this advice. I am often the Statue of Liberty when it comes to investing in inferior companies on the cheap: "Give me your tired, your poor, your huddled masses," etc.
45. Options promise big gains in short time periods. The problem? About three out of every four expire worthless. Contrast that with a stock, which doesn't expire.
46. Sorry, market timers: Take it from Peter Lynch, who said, "If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes." Or fellow investing great Ralph Wanger: "If you believe you or anyone else has a system that can predict the future of the stock market, the joke is on you." Or the godfather of value investing, Benjamin Graham: "It is absurd to think that the general public can ever make money out of market forecasts."
47. Keep a journal (or spreadsheet) of your stock picks, complete with your rationale for each move. Then look back on it to see if you were right. We may think we're good dressers, but all it takes is a high-school yearbook to prove otherwise.
48. Step aside, high blood pressure: Inflation is the silent killer.
49. Diversification doesn't entail making a whole bunch of dangerous investments and hoping they cancel out. That's the financial equivalent of stabbing your leg to cure your flu.
50. 13 Steps to Investing Foolishly is excellent.
51. Index ETFs may be the most wildly misused products in the stock market. They are excellent tools for ultra-low-cost buy-and-hold diversification, but many use them to day-trade the market (and sectors thereof).
52. Somewhere around 80% of actively managed mutual funds (as opposed to broad index funds) don't beat the market.
53. The more we learn about investing, the more we want to start doing exotic things (naked straddle options, anyone?) and buying stock in obscure companies no one has heard of. Maybe it's boredom, maybe arrogance, or maybe the desire to impress people at parties. Or perhaps it's seeking the glory of being right when few saw it coming. I'm guilty as charged on all counts. When I'm at risk of going off the deep end, I try to remember that stock picking isn't diving. As Buffett has noted, there are no extra points (or returns) for degree of difficulty.
54. This Einstein maxim is spot-on for stock analysis: "Everything should be made as simple as possible, but no simpler." Both clauses are crucial.
55. Just because a company or industry is set to change the world doesn't mean it's a great investment. Beyond looking at valuation, there tends to be a Wild West of players until a few winners emerge. In fact, market beater Ralph Wanger says, "Since the Industrial Revolution began, going downstream -- investing in businesses that will benefit from new technology rather than investing in the technology companies themselves -- has often been the smarter strategy."
56. Jumping from one flavor of the day to the next isn't continuous learning.
57. Long-tail events (a.k.a. black swans) are highly underrated. Nassim Nicholas Taleb explains it best in his book, Fooled by Randomness.
58. Every time I start getting cocky (which is often), I am unceremoniously reminded there are no sure-thing stock picks. As master investor T. Rowe Price noted: "No one can see ahead three years, let alone five or ten. Competition, new inventions -- all kinds of things -- can change the situation in twelve months."
59. I personally get way too excited when a stock hits its 52-week lows or falls 50%. Many sins are washed away in my mind when I see a bargain, but price movement by itself is not a sufficient reason to buy (or sell). Falling knives can be death -- especially when they're rusty and gross.
60. A related point: No one consistently times the bottom or top of a stock's price (let alone the market of stocks!).
61. Don't let the false modesty of investing greats fool you into false confidence.
62. My three strikes against gold. Strike one: Its value can't be estimated with basic math (since it just sits around producing nothing). Strike two: Wharton professor Jeremy Siegel showed that going back to the 1800s, the return on gold has barely kept up with inflation and is left in the dust by stocks and bonds. Strike three: Gold as a doomsday investment doesn't make much sense. If the apocalypse (financial or otherwise) actually comes, you're probably screwed regardless.
63. Discount cash on a company's balance sheet. Managements are brilliant at squandering it.
64. Done properly, value investing -- e.g., focusing on low-P/E, low-P/B, low-TEV/EBITDA stocks for ideas -- has proven to work quite well. But as successful growth-investor Bill O'Neil warns, "What seems too high and risky to the majority generally goes higher, and what seems low and cheap generally goes lower."
65. You may be too smart to be rich.
66. Know thyself. Know your weaknesses and strengths. Here's a specific example from Joel Greenblatt: "For most people, stocks should represent a portion of their investment portfolio because I still believe that over the long term they will provide superior returns relative to most alternative investments. However, whether that portion of an investment portfolio devoted to stock investments should be 40% of an investor's portfolio or 80% is a very individual decision. How much are you willing (or able) to lose before you panic out? There's no sense investing such a large portion of your assets in a long-term strategy if you can't take the pain when your chosen strategy doesn't work out for a period of years."
67. For some help on getting to know yourself, study the common mistakes behavior finance experts have uncovered.
68. Folks say that "success has many fathers, while failure is an orphan." Combine that with our willingness to overvalue streaks owing to one event, and I start to wonder: Do we overvalue managers that leave a successful organization to turn around a woeful organization?
69. If you just heard of the company yesterday, don't buy its stock today.
70. The Internet and better regulations have largely eliminated data advantages. The problem now is isolating which data is actually meaningful. Better results stem from increasing the signal-to-noise ratio.
71. Even if you rely on advice from others, heed the words of bond fund legend Bill Gross: "Finding the best person or the best organization to invest your money is one of the most important financial decisions you'll ever make." As with stocks, familiarity alone isn't protection. Check out our seven-part special report on financial advisors.
72. Stuff that leads to suckerdom: greed, laziness, unearned trust, ignorance, and shortcuts. When in doubt financially, do the opposite of your favorite athlete.
73. Make sure to get the right odds. There should be a vast difference between what we pay for a has-been or never-was and what we pay for a potential superstar company. As George Soros puts it, "It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong."
74. Initial valuation matters, but generally, over longer periods of time (decades, not years), stocks have returned more than bonds. The more decades you have left, the more of your portfolio should be in stocks to stave off inflation.
75. In theory, well-timed share buybacks are better than dividends. They save on taxes and allow the people who know the company best to buy up shares when the market acts crazy. In practice, I'll take dividends. (A tangential bonus fact: Dividend stocks have historically beaten non-dividend stocks).
76. Some of the most misinterpreted words in investing: Peter Lynch's "Buy what you know." It's more like "Research what you know and then consider buying."
77. Don't be an Enron baby. Overweighting your investments in the company you work for is a double-down bet we don't need to be taking. On the other hand, your company's 401(k) match is free money.
78. There are many paths to the top of the investing mountain, but some are more fraught with peril -- and there are very few trailblazers.
79. Numbers frequently lie -- especially in isolation. Say you spot a P/E ratio of eight. Sounds darn cheap! But is that industry's profitability rapidly deteriorating? Was there a one-time item that temporarily juiced the bottom line? Is an upstart competitor hungrily eyeing its lunch? Are new regulations threatening its livelihood? Is it a cyclical industry? Is it in a country that has a really poor reputation for accounting fraud or government interference? You get the idea.
80. Mergers and acquisitions are overrated. Somewhere between 50% and 85% of mergers fail to boost value. The frequency of achieving promised "synergies" should be filed somewhere between unicorns and no-hitters.
81. It's hard to be an independent thinker when the pressures to conform are daily and good investment theses can look ugly for years before paying off. Ben Graham said it this way: "Even the intelligent investor is likely to need considerable willpower to keep from following the crowd." Famed investor John Templeton talked of his defense against crowd-following: "When asked about living and working in the Bahamas during his management of the Templeton Group, Templeton replied, 'I've found my results for investment clients were far better here than when I had my office in 30 Rockefeller Plaza. When you're in Manhattan, it's much more difficult to go opposite the crowd.'" The digital equivalent today is turning off real-time news and Internet feeds and reading more thoughtful analysis.
82. The best book I've ever read on the basics of stock picking: Joel Greenblatt's The Little Book That Still Beats the Market. It's literally written so that a small child can understand it. It also does a great job of explaining why return on capital is a measure to pay attention to.
83. It's not the rewards you don't understand that'll burn you, but the risks you don't understand.
84. The guy who invented the P/E ratio (James Slater) on small caps: "Most leading brokers cannot spare the time and money to research smaller stocks. You are therefore more likely to find a bargain in this relatively under-exploited area of the stock market." Of course, because there is less interest and less Wall Street coverage, doing your own due diligence is that much more important. The same holds for other underfollowed areas of the market, like special situations.
85. If you can learn quickly from your own mistakes, you're ahead of the game. If you can learn quickly from others' mistakes, you've won the game.
86. Jim Sinegal of Costco on why you can't pay too much attention to Wall Street: "You have to recognize -- and I don't mean this in an acrimonious sense -- that the people in that business are trying to make money between now and next Thursday. We're trying to build a company that's going to be here 50 and 60 years from now."
87. If it seems too good to be true...
88. Buffett's concept of the "circle of competence" is important: "There are all kinds of businesses that I don't understand, but that doesn't cause me to stay up at night. It just means I go on to the next one, and that's what the individual investor should do." Also consider Steve Jobs' quote: "Focus is about saying no." For a great book on saying no, read Seth Godin's tiny book The Dip.
89. The stock moves I've made based solely on the advice of others -- e.g., "He's a good energy analyst and he loves this oil stock," or "This famous stock picker is buying X!" -- have generally been disasters.
90. If you can read a dissenting opinion without resorting to an ad hominem attack, you're at an advantage.
91. Downer alert: We like control, but we can't control everything. Life and luck can (and will) trump investment plans. You can do everything right and still die penniless. All we can do is give ourselves a better chance to succeed.
92. That said, if you're reading this article, there's a good chance the genetic lottery has smiled favorably upon you.
93. Here's something to think about the next time you get antsy to buy immediately into the latest must-act-now opportunity (e.g., a hot IPO). The year 1986 marked Coca-Cola's 100-year anniversary. If you had bought shares to commemorate the occasion, you'd be sitting on something like 15 to 20 times your initial investment. Time waits for no man -- but stocks will.
94. How can we get rich? Per Ohio State economics professor Jay Zagorsky: "Staying married, not getting divorced, [and] thinking about savings." To those, I would add having the proper insurance coverage.
95. There are more than 5,000 stocks on major U.S. exchanges. A great stock picker finds one great stock idea a year. Don't let the ones that got away frazzle you into buying the ones you should have ignored.
96. The Pink Sheets and over-the-counter markets are where sketchy penny stocks live. Do yourself a favor and stick to stocks on major U.S. exchanges -- preferably ones with market caps of more than $200 million. And never, ever heed penny stock spam emails.
97. When I learned to drive, I nervously focused on each upcoming parked car. My father told me to focus down the road and the parked cars would take care of themselves. Perhaps my first lesson in investing.
98. Do not buy low and sell high; rather, buy low and don't sell often.
99. For the penultimate lesson, let's turn once more to Warren Buffett, who briefly said in his 2004 shareholder letter what took me 98 bullet points to say:
Over the 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback Corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.
There have been three primary causes: first, high costs, usually because investors traded excessively or spent far too much on investment management; second, portfolio decisions based on tips and fads rather than on thoughtful, quantified evaluation of businesses; and third, a start-and-stop approach to the market marked by untimely entries (after an advance has been long under way) and exits (after periods of stagnation or decline). Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy and greedy only when others are fearful.
100.  Despite my best efforts, I will repeatedly and thoroughly fail to heed these lessons. Let's hope you're better at No. 85 than I am.

Tuesday 17 April 2012

Common Investing Mistakes


Investing for the long-term can be extremely beneficial to the person who takes advantage of it. But that doesn't mean that there aren't any pitfalls. Here are five common investing mistakes that you should avoid if you hope to fully benefit from a long-term investing approach.

Investments Are Too Conservative/RiskyA big mistake people make is that they pick investments which are too conservative or risky for their investment goals. For example, a person who invests too conservatively with quite a bit of time before retirement might find that they will need to save more than they planned to because their investments aren't appreciating enough. An investor who is nearing their financial goals who decides to put their money in more volatile investments will find that they are taking unnecessary risks with their portfolio.

If you want to find out how much risk you should be taking with your investments, take time to ask yourself three questions: "What am I investing for?", "How much time do I have before I need the money?", and "How much can I invest?" Then you might want to talk it over with an investment professional. Or look at our model portfolios.

Losing Interest in InvestingI know it's hard to imagine but there are actually some people who just aren't interested in investing. While you don't have to have a passion for investing to accumulate wealth in the long-term, it definitely helps. What I've found is that a lot of people lose interest in their investments after a couple years. When they first begin investing, they might tell themselves "I am going to invest $100 each month until I retire" but as time passes, they decide that they would rather spend that extra money each month. This is a big pitfall that you should avoid because that extra spending money could literally cost you hundreds of thousands of dollars in the long run.

Losing Sight of Your Financial GoalsThe 1990's had an incredible bull market that spawned a new type of investing...daytrading. This bull market led to great gains and has made quite a few people extremely wealthy, and the media has hyped high-flying stocks to get people's attention. The problem with this is that it has caused many people to forget their financial goals. With all this hype, people are investing in these hot stocks, even with college or retirement just around the corner.If you're nearing retirement or whatever it is you're saving for, don't give in to the hype. Instead, keep your mind on your goals, instead of ways to get rich quick.

Investing in What You Don't KnowYou may have heard of the popular investing concept "invest in what you know." Another way of saying this is "don't invest in what you don't know". A lot of people invest in companies that they know little or nothing about. This can hurt them because a situation might arise that they didn't know about.You can't expect to know everything about a certain stock but it does help to invest in what you know the most. Rather than investing in what you don't know, get out a piece of paper and write down the names of some companies that you do know about and then look up their stocks.

Not Educating YourselfThe previous four mistakes that investors make are important ones but this is probably the biggest mistake of all. Far too many people want to invest but they don't know enough about it. Rather than taking the time to learn what they can, they decide to try investing on their own first.It is extremely important to have a good understanding of how investing works before you actually start, especially if you plan on investing in stocks or any riskier investments. Getting experience in investing is important but it's wise to have at least a basic understanding before you decide to do so.From time to time, investors do make mistakes but these are five of the biggest mistakes that you should try to avoid. If you can do that then you will be tipping the odds in your favor when you are investing.

http://www.teenanalyst.com/investing/fivemistakes.html

http://www.teenanalyst.com/investing/

Thursday 19 January 2012

Seven Most Deadly Sins of Investing


Greed
Motivation and Destruction: Greed it's a interesting one. Where it's hard to know how greedy to go, or how much should I really want. You've got something that you want to make into something more. No problem with that. But too much greed will ensure your failure. Stop chasing that fast cash, this one is a ringer, this one is it thoughts and investing. Make sure you are not getting greedy, but still investing wisely and not out of greed, motivation. Generations of stock market losers have proved that there's no such thing as a fast buck. But there are bucks to be made for those who can overcome their urges and avoid this sin, and the rest of the seven sins.

Gluttony, Envy, and Lust
When lusting about anything it's very unhealthy. Lust can leave you in the alley street with literally nothing. Especially in our commercial culture, fiscal gluttony is easily sparked by its sister sins, Envy and Lust. If you need to have the shiniest car on the block or the biggest granite countertops in all of Poshbottome Pointe, your absolute investment returns are sure to suffer.

Take this example, say Average Joe could invest and have a annual returns of 15% a year. (That would make you a very good investor -- so you shouldn't count on those kinds of returns.) For the example Average Joe is dreaming big. It still won't make you wealthy if you're earning that 15% on nothing. Remember: Buffett didn't get rich just by making great investments. He got rich by not wasting money that could be added to the kitty. Don't believe me? Do the math. No, wait, let us do it for you.

If you start with $1,000 and earn that 15% a year in a tax-free account, your money will be worth $87,500 after 30 years. Not too shabby. By contrast, if you can skip the gas station stops in the morning and bag a lunch a couple of times, you can scrape together a lousy $1,000 a year to add to your nest egg. The final result? $625,000. Drive an old clunker and ignore all those tempting incentive offers from keeping up with the jones, and then save the $500 a month you would have spent on coffee and cars, and you'll be looking at $3.3 million -- though perhaps not if you invest in GM, while it battles slowing sales and an expected earnings decline.

Yes, Averag Joe is now looking more like Donald Trump (okay we will not get carried away). But do the same at a more reasonable 8% rate of return, and you'll still end up with $730,000. The point is this: Unless you're already sitting on a pretty big pile of dough, your stuff-envy and financial gluttony will be a much bigger factor in your future financial independence than any magic you can conjure for your portfolio's performance. Control your urges accordingly.

Anger
If you don't know Anger around the stock market, then you have been to yahoo's message board before have you? Seriously, that at times can be the anger in and of itself just reading through those message boards or other stock forums. Anger is a natural reaction to adversity, but it's one that rational investors need to overcome if they hope to have consistent success.


Investing is an inherently risky activity that demands a hard look at the facts, good and bad. But a huge number of stock buyers view it like some kind of Sunday-afternoon competition. It's like a intense sports match, cheering on there team, but giving heck to the others! And the anger makes them blind to the negatives. Woe unto the drunk fan who points out the lack of steady revenues and complete absence of profits at a company like Lakers. Plenty of angry members of the Stinger crowd try to blame the others for any downtick, even though they can see for themselves the firm has minute sales; no profits; mystifying, short-lived management; and a CEO with long history of failures.

Mr. Crazy Fan, criticism of a company you own does not constitute an affront to your personal honor. Mr. I am right fan, my positive comments about your company's competitor in no way constitute an agreement to meet with pistols at dawn. That throbbing vein in your forehead is a good indication that you're fixated on the wrong things. Embrace the stuff that angries up your blood. You might learn something important.

Pride
I'm right, and everyone else is wrong. We all feel that way, so I'm not going to deliver a blanket condemnation of self-assurance. After all, acting on your convictions is part of the arrogance of investing. If everyone shares the same, correct opinion of a stock, then it must already be fairly priced. We are convinced we can find sweet bargains or future world-beaters ahead of the rest of the crowd. But not every time. If you believe that, you're in trouble.

That's the kind of pride that will kill investors over the long run. The problem is that, in individual cases, the market rewards the ignorant and the informed without pointing out which is which. It's nice to see the long-suffering shareholders finally catch a break, but it doesn't change the fact that plenty of people brought the suffering on themselves by ignoring the firm's consistently deteriorating financials to purchase a pig in a poke.

When a stock goes up, those who bought it purely because they like the product, or hate a competitor, will swear up and down that they are finally being rewarded for their smarts, but the truth is, they're just being rewarded. The trouble with being otherwise deluded is that such irrational pride and (in the long run) the odds, catch up with you. Investing is about maximizing returns, but you can't do that without minimizing risks. There is a difference between being right and being lucky. I've been lucky before in getting out at the right time, but the danger is taking particular pride in it. It scared me into being even more careful with my future decisions. You need to live and learn and plan for the future, ackowledge your winnings but most importantly your losing to grow and learn from them.

Sloth
Let's think a little more about being a sloth, and when it comes down to it sloth is being lazy. There's no room in investing for good, old-fashioned sloth aka laziness. If you are too lazy to look research your stock company, the stock companies nubmers and and proxy statements, you're setting yourself up for some major failures. Yet every day, we are treated to amazing examples of extreme investor laziness. There are countless times you hear about a stock, but then if you get caught into the one of the seven deadly sins of stock picking and decide to be to lazy to do your homework and research then your asking for trouble. Going strictly on hear say information, one person's picks, etc. We see them all the time...but don't get caught being lazy and not doing your homework!

The road to righteousness

Some of history's most successful investors have said it time and time again: The journey to stock market wealth doesn't require superior instincts, faster reflexes, or better information. What it does require is patience, perseverance, and the willingness to do some work and avoid the mistakes that others are too quick to make. If you can steer clear of the seven sins of stock picking, you'll already be one up on Wall Street. Always remember there is room for bears and bulls, but never any room for pigs on "The Street"!


http://www.investingfocus.com/seven-most-deadly-sins-p3.html

Saturday 16 October 2010

How to Avoid the 7 Most Common Investor Mistakes And Build Steady Profits No Matter What the Markets Do

Investor Mistakes  

How to Avoid the 7 Most Common Investor Mistakes And Build Steady Profits No Matter What the Markets Do


One of the most least understood truths of investing is this: Success in the game of investing depends more on not making investor mistakes than it does on picking big winners. Period.

Of course, finding a neglected small-cap stock and riding it to the stratosphere is exhilarating.  And nothing compares to the pure satisfaction of the hunt. (My comment: HaiO!! and Latexx!!)  But, as anyone who’s been around the financial markets for a long time will tell you, it just doesn’t happen very often. 

The real pros understand that success comes from sidestepping the traps-specifically, the mistakes that lure the unwary investor into unrecoverable disasters. 

Day in and day out, these pros follow a disciplined approach. They’re not swayed by talking heads and self-appointed market pundits who babble on about the next big thing. They’re confident in their ability to stay out of trouble and ride through the rough spots as they wait for the next good opportunity.

Click here to take a look at some of the top investor mistakes.

Seven Deadly Sins of Investing.” 
http://www.investmentu.com/resources/investormistakes.html

Investor Mistake #1: Following the “Saturday Morning Hero” Will Lead to the Promised Land of Investing

Investor Mistake #2: A Few Weeks Is Long Enough to Wait for Huge Profits

Investor Mistake #3: You Should Only Buy Soaring Stocks, Using “Insider Knowledge”

Investor Mistake # 4: Wall Street’s Wizards Will Hit Home Runs for You

Investor Mistake # 5: There’s Always Another Tech Run-Up Just Around the Corner

Investor Mistake # 6: If You Listen to Enough Televised Investing Reports, You’ll Learn Something Profitable

Investor Mistake #7: Watching the Markets and Predicting Them Is the Key to High Returns

Saturday 7 February 2009

Top 6 Most Common Financial Mistakes

Top 6 Most Common Financial Mistakes
by Investopedia Staff, (Investopedia.com) (Contact Author Biography)


It is indeed a material world. When it comes to spending, the U.S. is a culture of consumption. The result: rising levels of consumer debt and declining household savings rates. But in 2008, this culture was hit hard by economic reality. According to the Federal Reserve, U.S. household debt grew steadily from the time the Fed started tracking it in 1952. It declined for the first time in the third quarter of 2008. As a result of the credit crisis and ensuing economic recession, savings rates also rebounded. For those who had been living beyond their means for years, it suddenly got a lot harder to make ends meet. And, although the government tends to encourage spending during economic downturn and statistics may lead us to think that overspending is normal, it is often a risky choice. Here we'll take a look at seven of the most common financial mistakes that often lead people to major economic hardship. Even if you're already facing financial difficulties, steering clear of these mistakes could be the key to survival.


Mistake No. 1: Excessive/Frivolous Spending
Great fortunes are often lost one dollar at time. It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments. If you're enduring financial hardship, avoiding this mistake really matters - after all, if you're only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever. (For more insight, see Squeeze A Greenback Out Of Your Latte.)

Mistake No. 2: Never-Ending Payments
Ask yourself if you really need items that keep you paying for every month, year after year. Things like cable television, subscription radio and video games, cell phones and pagers can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning your from financial hardship. (For more on this, see Get Your Budget In Fighting Shape.)

Mistake No. 3: Living on Borrowed Money
Using credit cards to buy essentials has become somewhat normal. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries and a host of other items that are gone long before the bill is paid in full, don't be one of them. Credit card interest rates make the price of the charged items a great deal more expensive. Depending on credit also makes it more likely that you'll spend more than you earn.(To learn more about credit cards, see Take Control Of Your Credit Cards and Credit, Debit And Charge: Sizing Up The Cards In Your Wallet.)

Mistake No. 4: Buying a New Car
Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car means an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car. Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years, and lose money on every trade.

Sometimes a person has no choice but to take out a loan to buy a car, but how much does any consumer really need a large SUV? Such vehicles are expensive to buy, insure and fuel. Unless you tow a boat or trailer, or need an SUV to earn a living, is an eight-cylinder engine worth the extra cost of taking out a large loan? If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Cars are expensive. You might need one, but if you're buying more car than you need, you're burning through money that could have been saved or used to pay off debt. (To keep reading about this subject, check out Car Shopping: New Or Used?)

Mistake No. 5: Buying Too Much House
When it comes to buying a house, bigger is also not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant, long-term dent in your monthly budget? (For more on buying a home, see Mortgages: How Much Can You Afford? and Downsize Your Home To Downsize Expenses.)

Mistake No. 6: Treating Your Home Equity Like a Piggy Bank
Your home is your castle. Refinancing and taking cash out on it means giving away ownership to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity, not make payments in perpetuity. In addition, you'll end up paying way more for your home than it's worth, which virtually ensures that you won't come out on top when you decide to sell. (For further reading see Mortgages: The ABCs Of Refinancing.)

Living Paycheck to Paycheck
In 2007, the U.S. household savings rate fell below 1%, but other countries had considerably higher rates of personal savings. For example, the Netherlands, Italy, Norway, Germany and France personal savings rates average 10% or more according, to the OECD Factbook 2005. Clearly it is possible to enjoy a high standard of living without financing it with debt. Countries in Asia boast savings rates of as much as 30%!

The cumulative result of overspending puts people into a precarious position - one in which they need every dime they earn and one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. If this happens, you'll have very few options. Everyone has a choice in how they live, so it's just a matter of making savings a priority.

Making a Payment Vs. Affording A Purchase
To steer yourself away from the dangers of overspending:
  1. Start by monitoring the little expenses that add up quickly, then move on to monitoring the big expenses.
  2. Think carefully before adding new debts to your list of payments, and keep in mind that being able to make a payment isn't the same as being able to afford the purchase.
  3. Finally, make saving some of what you earn a monthly priority.

For more, check out Seven Common Investor Mistakes.

by Investopedia Staff, (Contact Author Biography)Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including thousands of original and objective articles and tutorials on a wide variety of financial topics.