Investment Mistakes in a Bear Market

Successful investing is not magic, just keep things simple and maybe follow few investing and money rules of thumb and you’ll be fine in the long run.

Investment Mistakes in a Bear Market

1.  Selling without any logical reasoning or attention to long-term goals.  Often they all miss the fact that they are selling at the bottom to only repurchase them back at the top. Stop selling without a reason, only sell if the fundamentals have changed for the long term or the investment does not fit in your plan, not because everyone else is selling in the market.

2.  The only worse thing one can do than selling out in a bear market is stop investing during the bear market.  Would you stop shopping if retail prices dropped 30%? No.   When you stop investing during a bear market you will miss out on many undervalued investment opportunities which can have great returns in the long run.

3.  Some investors start to look at alternative investments, (e.g. gold) because they believe somehow these will perform better than the equity markets.  Although alternative investments have their place in a portfolio the excessive focus during bear markets makes them dangerous.

4.  Just stop wasting your time and money trying to time the markets. Investors are more likely to time the markets during a bear market, as there are often big swings, which are seen as opportunities by investors, this strategy will only hurt your portfolio.

I know bear markets hurt, but you trying to “improve” things will only make things worse.  

• What were your investment mistakes during this bear market? 
• What have you learned from them?  
• Do you know anyone who made these mistakes?

With mistakes, there is no cheaper insurance than accepting a loss quickly

Nevertheless, in investing, mistakes will be made.

And when they are, there is no cheaper insurance than accepting a loss quickly.  

That is the tactic of retreat than capitulation.



Serial losers

It would be very difficult for an investor losing, say, 5% to 10% each time on a succession of ventures, to continue to lose time and time again without checking his errors or stopping altogether.



Long term hold irregardless

A buyer who holds regardless of unfavourable news or action can become involuntarily locked in his "investment" for years and often, no amount of future waiting can extract him from his predicament.

It is important to regard the situation with an open mind, unbiased by a bad stale position, and it is important to be able to act each time convictions are very strong.

Unless losses are cut, such an attitude and such action are impossible.

The question to ask yourself: Can I get more for my money somewhere else?

Recognise your mistakes

If you have a good person running the business and the business is not making money, you need to recognise the business is not a good one.  Take action to get out of this business, you are in the wrong business..


When prices fall

I love it when the prices of the things I buy go down.  This applies to stocks too.

Many people think the stock knows more than they do.  So when the stock goes down in price, they think the stock is telling them something.  They take the price as if it is a referendum on themselves versus the stock.

The truth is the stock doesn't know what you pay to own it.  The stock doesn't even know if you own it. You are nothing to the stock.  Yet, the stock is everything to you.  You remembered paying $10.13 for the stock.

The only question to ask yourself:  Can I get more for my money somewhere else?

13 Investors Share Their Biggest Investing Mistake And What They Did To Fix It

To say I am a little excited about this article would be a dramatic understatement.

We tapped the minds of some of our favorite investors and experts to tell us what their biggest investing mistake was and how they fixed it.

Here are the panel of experts…

– David Merkel, Principal of Aleph Investments.

– William Bernstein, Best Selling Author of The Four Pillars of Investing, EfficientFrontier.com.

– Charlie Tian, Founder of GuruFocus.com.

– Todd Sullivan, Co-Founder and General Partner in Rand Strategic Partners.

– Tobias Carlisle, Founder and managing director of Eyquem Investment Management, LLC, serves as portfolio manager of the Eyquem Fund LP.

– Evan Bleker, Author of NetNetHunter.com, Net Net Hunter Newsletter.

– Tim Melvin, Author of TimMelvin.com, Deep Value Letter, Banking on Profits.

– Ben Carlson, Author of AWealthOfCommonSense.com, helps manage an investment portfolio for an endowment fund.

– Nate Tobik, Author of OddBallStocks.com, Founder of CompleteBankData.com

– Dave Waters, Author of OddBallStocks.com, Investment Manager of Alluvial Capital Management.

– Kevin Graham, Author of CanadianValueInvesting.Blogspot.com.

– Lane Sigurd, Author of ReminiscencesOfaStockblogger.com

– Whopper Investments, Author of WhopperInvestments.wordpress.com

The Questions:

* What was your biggest investing mistake?

* What did you do to fix it?

Here’s what our expert investors had to say about their mistakes and what they could have done to fix it.

(NOTE: We’d love to hear your biggest mistakes and what you did to fix it. Give us your thoughts in the comments section below).

David Merkel, AlephBlog.com

Biggest Mistake: My biggest mistakes almost always stem from buying companies where the balance sheet is deficient.  Once such company was Caldor. Caldor was a discount retailer that was active in the Northeast, but nationally was a poor third to Wal-Mart Stores, Inc. (WMT) and KMart. It came up with the bright idea of expanding the number of stores it had in the mid-90s without raising capital. It even turned down an opportunity to float junk bonds. I remember noting that the leverage seemed high.  Still, it seemed very cheap, and one of my favorite value investors, Michael Price, owned a little less than 10% of the common stock. So I bought some, and averaged down three times before the bankruptcy, and one time afterwards, until I learned Michael Price was selling his stake, and when he did so, he did it without any thought of what it would do to the stock price.

How He Could Have Fixed It: There were a number of lessons: 1) Don’t average down more than once, and only do so limitedly, without a significant analysis. This is where my portfolio rule seven came from, 2) Don’t engage in hero worship, and have initial distrust for single large investors until they prove to be fair to all outside passive minority investors, 3) Avoid overly indebted companies. Avoid asset liability mismatches. Portfolio rule three would have helped me here; 4) Analyze whether management has a decent strategy, particularly when they are up against stronger competition. The broader understanding of portfolio rule six would have steered me clear; 5) Impose a diversification limit. Even though I concentrate positions and industries in my investing, I still have limits. That’s another part of rule seven, which limits me from getting too certain.

William Bernstein, EfficientFrontier.com

Biggest Mistake: I didn’t understand how the riskiness of stocks is relatively low in the accumulation phase and rises as the ratio as the ratio of investment capital to human capital increases.  Consequently, I was too conservative when I was young.  Below the age of 40, the saver actually seeks risk, as volatility early in the savings phase increases eventual wealth.

How He Could Have  Fixed It: Invest early in life.

 

 

Charlie Tian, GuruFocus.com

Biggest Mistake: I certainly made a lot of mistakes. But I couldn’t single out the biggest one. I would say that my biggest mistake is not one investment. It is the methodology that led to the mistakes. I should have developed a checklist much earlier for my investment decision making process.

How He Could Have Fixed It: With the checklist, a lot of mistakes could have been avoided. Now my investment checklist checks the quality of the business, the valuation, and the recent business development. It is also a new feature on GuruFocus, where users can create and customize their own investment checklist. [Author’s Note: I have used the checklist on GuruFocus, and they are great.]

 

 

Todd Sullivan, ValuePlays.com

Biggest Mistake: In 2002 I invested in McDonald’s due to the mad cow scare and its impact on the company. I held it and was feeling pretty smart as share rose >$40. In 2006 they spun off this little ‘burrito company’ as I called it named Chipotle. I knew nothing about the company as there weren’t any in my area yet. Upon receiving the shares in the spin I sold them shortly after for ~$50 thinking I got a good price for this small chain. They sit today at $647

How He Could Have  Fixed It: The lesson here is before you develop an opinion about a company, you owe it to yourself to at least do work on it.

 

 

Tobias Carlisle, GreenBackd.com

Biggest Mistake: The mistake that most make is failing to faithfully follow the output of the model,  preferring instead to substitute their own judgement. When they do so,  they invariably underperform. It’s incredibly difficult to do it without substituting one’s own biases. It’s a mistake I’ve made a lot.

How He Could Have  Fixed It: Research shows that most equity investors are best served by following simple statistical models like the Magic Formula.

 

 

 

Evan Bleker, The Net-Net Hunter

Biggest Mistake: The biggest mistake I ever made as an investor didn’t have to due with any individual stock pick — it was failing to accurately assess my own time and investment skill set which lead me to try to replicate the investment style of gifted people like Warren Buffett and Peter Lynch. These big named, fantastically successful, investors often make investing sound easy but laying behind their tremendous success are decades of dedicated study, a high degree of investment/business aptitude, and the time to apply a detailed investment strategy that’s often summed up in just a few sentences.

How He Could Have Fixed It: What I should have done was adopted a mechanical investment strategy since these strategies are easy to apply for average investors and very profitable. That shift would have turned years of early losses and frustration into an even longer record of great investment results.

Tim Melvin, TimMelvin.com

Biggest Mistake: I would say I’ve made a number of mistakes. It’s a very long list. But, I will say they usually have a common thread: I stretched the definition of margin of safety, where I was willing to pay up a little bit for a really good story. For example, Hercules Offshore (HERO), we have taken a beating in that stock. We tested the financials for $70 a barrel of oil. I thought we were rock solid. I could not imagine a scenario in which oil was going under $70. Insiders in the company were buying, they owned a good deal of the company. They were a dominant driller in the Gulf, and the Gulf was coming back a little. Then oil prices went to $70, and then $60, and then $50, and now there’s no drilling in the Gulf. They’re cold stacking rigs, which cost a lot of money. So your margin of safety is completely shot. It’s gone. This is the first time I can remember, where we had high commodity prices, and you still had stocks trading below book value. In hindsight, that should have been a clue.

How He Could Have  Fixed It: You do have to look at the extreme or unthinkable scenario on the downside, and not just the reasonable one.

Ben Carlson, AWealthOfCommonSense.com

Biggest Mistake: The biggest mistake I made as an investor was believing early on in my career that the best way to achieve success in the markets was to outsmart the market or other investors. I was just out of business school and got the CFA designation. I was under the impression I could do no wrong. The market is a very humbling place, so eventually I learned that it’s really not about outsmarting other investors or the market as a whole, it’s about not outsmarting yourself.

How He Could Have  Fixed It: Once I learned how to control

myself, my reactions and my behavioral biases and started to focus only on those areas that are within my control it really made things much simpler for me as an investor.

Nate Tobik, OddBallStocks.com

Biggest Mistake: My biggest mistakes have all occurred when I’ve neglected to invest with a sufficient margin of safety. Smaller mistakes have occurred when I’ve rushed into investments instead of thinking over an idea for a few days.

How He Could Have  Fixed It: The best way to counter-act these problems is to think through negative potential outcomes for an investment. Then ensure that the purchase price is low enough that if even the worst case scenario were to happen the investment wouldn’t lose money. Think it over for a few days and then invest.

 

 

Dave Waters, OTCadventures.com

Biggest Mistake: My biggest mistake came from assuming a trend would last far longer than it actually did. When I bought Awilco Drilling, it was trading at 3.5x free cash flow and seemed poised to maintain that level of cash flow for years and years to come. Just six months later, the collapsing oil market made that cash flow outlook a distant memory and the stock fell 60%.

How He Could Have  Fixed It: When dealing with cyclical industries, never assume the good times will last forever. Don’t assume lean times will, either. Always insist on a margin of safety to a conservative estimate of mid-cycle valuations.

 

Kevin Graham, CanadianValueInvesting.blogspot.com

Biggest Mistake: The biggest mistake I have ever made was investing in technology back in 1999. Today I don’t consider it a mistake because I have learned so much and learning that lesson early in life has and will save me much more in the future. That said, here’s something with a little more meat on the bone: I invested in natural gas back before the shale gas revolution. It is playing out nearly exactly the same as oil today. Anyway, shale gas changed the nature of the industry on a permanent basis and I refused to believe the evidence. Some call this confirmation bias, but I prefer egocentric blindness. High decline rates, high capital costs, it’s only a short term fad…etc. If you check the EIA data, US NG production just reached 90 Bcf/day. It has gone up every year for 10 years. It continues to go up even though NG prices are at record lows and many companies are struggling. They were propped up by stripping liquids but that game is now over too. NG has been roughly sub 4/mcf for a decade.

How He Could Have  Fixed It:  “History never repeats itself, but it does rhythm.”  The same thing is happening today in oil. I called this on my blog and it is still playing out. Oil will likely move lower sometime this year.

Lane Sigurd,ReminiscencesOfaStockblogger.com

Biggest Mistake:  Unquestionably holding Potash Corp through the second half of 2008.  I decided that the ag sector was safe enough to withstand the downturn.  I underestimated the downturn, I overestimated the resilience of the potash market and I misjudged the investor base of the stock.  It was around a 30% position for me at the time so it was very a painful experience.  While the monetary loss was bad, the psychological loss was probably worse.  I learned that regardless of how strongly you think you are right, there is still a decent chance you are not, or perhaps more subtlety, that the conditions that made you right will change and you will become wrong before you realize it.

How He Could Have  Fixed It: In order not to repeat this sort of event I honestly believe that when the stocks you own start to turn against you, you just have to sell.  It will incredibly painful and betray every instinct you have but it is necessary.  To do this I think you have to prepare for it ahead of time by practicing non-attachment to what you own and by not fixating on the current value of what you own (since you will undoubtedly be selling at a lower price).

Whopper Investments, WhopperInvestments.wordpress.com

Biggest Mistake: My biggest investing mistakes have come from companies with assets that are obviously worth more than the entire company but where there are issues that prevent a sale of the asset along with another piece of the business that consumes cash / value. The best example of this is probably Premier Exhibits (PRXI), which has some uniquely valuable Titanic assets which have extreme restrictions placed on them in a sale and are attached to a business that is very competitive. I think the most dangerous part of these investments is it makes it very easy to average down, as you can constantly focus on that large asset value and say “hey, those assets are worth $10 and the stock has traded down from $5 to $3; it’s time to back up the truck!” despite continued cash consumption or value deterioration from the other side of the business.

How He Could Have  Fixed It: Focus on such things as; cash burn rate or the business’s probability of turnaround in deep value situations.

By Lukas Neely of Endless Rise Investor

Tuesday, March 3, 2015 4:26 AM EDT

http://www.talkmarkets.com/content/investing-ideas--strategies/13-investors-share-their-biggest-investing-mistake-and-what-they-did-to-fix-it?post=59927

Are You Making These Investing Mistakes?

by MMARQUIT

One of the ways that you can build wealth, and live a little more abundantly is to invest. Investing can provide a way for you to put your money to work on your behalf. While there are risks involved in investing, and the possibility of loss, you can reduce some of that chance of loss by avoiding some of the more common investing mistakes.

As you consider investing, and how to build a portfolio that works for your situation, here are some common mistakes to avoid:

1.  Panicking with the Crowd

It’s easy to get scared and panic — especially when everyone else is doing it. However, you need to be careful about when you sell investments. While there are some very good reasons to sell a stock, it’s rarely a good idea to sell a stock just because everyone is in panic mode.

Instead, take a step back and look at the big picture. Are assets losing ground because the whole market is tanking? If so, you might not want to pull the trigger too quickly. Instead, consider the fundamentals. If the fundamentals are still solid, there is a good chance that your assets will recover in time.

2.  Trading Too Often

This can be tied with panicking, but it can also be its own problem. Too many of us get caught up in to day to day movements, and think that we need to trade a lot. While there are day traders who manage to make good money on regular market movements, it’s important to realize that these traders are dedicated to what they do.

Most of us regular folks are better off trading at wider intervals, or employing a dollar cost averaging strategy. Trading too often can cost you in terms of transaction fees, and there is a bigger chance that you will lose out.

3.  Lack of Diversity

If you want to reduce the overall risk of your portfolio, you need to remember to diversify to some degree. You need to make sure that your investments are diversified in terms of asset class, as well as across different sectors and industries. It also doesn’t hurt to diversify geographically and include investments from other countries. Avoid investing heavily in your company’s stock.

It’s fairly easy to start investing, and to diversify. There are index funds and ETFs that allow you to diversify easily, while at the same time helping you avoid some of the bigger risks that can come with investing.

4.  Failure to Understand What You're Investing In.

One of the reasons it’s good to start with stocks and bonds, and investments that are based on them (like index funds and ETFs), is because they are fairly easy to understand. You shouldn’t invest in things that you don’t understand. Take a few minutes to learn how different asset classes are traded, and how different investments work. It is also worth to learn what factors influence different investments. Get a handle on how different investments work, and you will be far more likely to find success and avoid some of the pitfalls that bring down investors.


http://couponshoebox.com/tips/are-you-making-these-investing-mistakes/

WARREN BUFFETT- DON'T MAKE THIS TERRIBLE MISTAKE

Buffett: Buying and selling stocks on current news is a mistake.

Roundtable: The Worst Investment Advice You Ever Got

By Motley Fool Staff | More Articles 

September 12, 2012 | Comments (8)

In the lead-up to Sept. 25's Worldwide Invest Better Day, The Motley Fool is reacquainting investors with the basic building blocks of investing.

Yesterday, we held a roundtable asking a group of our top analysts forthe best investment advice they ever got. Today, it's time for the flip side... the worst investment advice they ever got.

This may be even more fun. Here's what they said.

Dan Caplinger: The worst investment advice I ever got was from the full-service broker my parents used. He had me invest in a bunch of index-tracking mutual funds that included high annual fees as well as a back-end sales charge that locked me into the funds for several years. Later, I discovered I could get a nearly identical set of funds that would save me several hundred dollars in fees each year. In the end, I decided to pay a 2% sales charge in order to get out of the costly funds as soon as possible. But I've been critical of full-service brokers ever since, and the experience taught me just how important it is to reduce investing costs wherever you can.

Anders Bylund: There's nothing wrong with diversification -- as long as it's properly done. But spreading out your investment dollars without a clear strategy is "diworsification" at its worst.
As a young investor, I was informed that my portfolio really needed more balance across both geographies and market sectors. After much hand-wringing, I picked a Japanese carmaker, an American megabank, a large pharmaceutical specialist, and some other things I barely understood.

These were some of my worst investments ever. When I finally closed out the last of my diversification plays, they had all gone sideways at best over nearly a decade. That's dead money, while I was handily beating the market in industries that made sense. My portfolio would be much fatter today if I had doubled down on the technology and media stocks close to my heart, rather than wasting my time on diversification for its own sake.

Matt Thalman: I was new to investing and talking with a co-worker. He claimed his brother was buying tons of shares of this little-known mining company that was about to hit it big. Sound familiar to anyone? So I go and buy a few thousand dollars' worth of this penny stock. For months nothing happens, then about a year later, cha-ching. In a matter of days thestock was up tenfold. (This was before I had been given the best investment advice ever and my emotions took hold. Greed! I made a good deal of money, but didn't sell when I should have.)

So if you haven't guessed it, I owned a stock, then coincidently it was pumped by a penny stock scam . So why was that the worst advice I was ever given? Because, still to this day, I know it was just dumb luck that I made money on this, but I still find myself looking atpenny stocks from time to time. Dreaming of hitting it big again when I know I'd be better off burning the money I would invest in these stocks.

Morgan Housel: I've never owned a house. And I can't remember how many times I was told in 2005 and 2006 that, "You're throwing your money away!" by renting. I didn't take the advice to buy, but I came close. It was offered by so many people whom I admired. When everyone around you is making a fortune doing something you're not, you start to question yourself.

In hindsight, it was terrible advice. Tens of millions of Americans have seen their net worths destroyed by the mistaken belief that owning a home is always and forever a good thing. I think the belief persists to this day. And it's just wrong. The decision to buy a home is a complicated one that rests on how long you can stay in one area, how stable your job prospects are, the comparability of local rents, population growth in your town, and of course, housing prices. Owning makes sense for a lot of people, but it's not a slam dunk. Renting is a superior option for millions of Americans. 

LouAnn Lofton: "You'll never make money in stocks. You're not smart enough, you don't know enough, and you're not trained in this." Thanks, but no thanks, Mr. Sneering Condescending Financial Advisor. I was young when I started investing, sure, but I didn't deserve that. Luckily, I'd already read about and been inspired by legendary financial gurus like Warren Buffett and Peter Lynch, (soon I would also learn about this amazing community of do-it-yourself investors called The Motley Fool) so I was not intimidated and I was not swayed by this guy's "charm." Ah, the pleasure I felt standing up and walking out of his office. I haven't looked back.

Anand Chokkavelu, CFA: Beware anyone's advice on their "love stock." When someone's enthusiasm for a company starts to sound like fanaticism for a sports team, the logic can get twisted and the objectivity can get nonexistent. That goes for our love for our own stocks as well. As an example, I love my shares of Accenture, but since it's my former employer I have to watch for nostalgia and familiarity clouding my judgment.

Molly McCluskey: Wait until you're out of debt before you start investing. What a terrible idea! In my twenties, I had student loan and credit card debt. Now I'm saving for a mortgage. Who knows what other expenses will come along. The trick is to keep investing in spite of them.

Had I been smart, I would have been socking away every little extra bit that came in from the second I finished undergrad. I would have gone to the movies less and rented more, packed my lunch, taken the bus, rented smaller apartments in cheaper cities, had more roommates, visited the bookstore less and the library more, and put all that money away. I would have developed the habit of investing, long before there was anything to show for it.

Tim Beyers: On the advice of a financial professional, I once bought a thinly traded penny stock. His pitch: The business was essentially trading for the cash on its balance sheet, making it a screaming value. And I bought it, hook, line, and sinker. What I should have realized is that cash comes and goes all the time. Genuine competitive advantage and skill in allocating capital, on the other hand, are rare. My shortsightedness cost me thousands of dollars that should still be sitting in my retirement account.

Eric Volkman: "Don't worry about it -- open a position! They own that huge asset and it ain't going nowhere; sooner or later, they'll have to turn a profit. Really!!" So said a colleague of mine about one particular company, the name of which I won't reveal (OK, OK, it was France/Britain's Eurotunnel). That asset (the Channel Tunnel) was a big and impressive one, all right, so much so that I cheerfully ignored the company's many other problems... plus the fact that it didn't technically own the tunnel. I bought a thousand shares. Wh-hoops! The problems deepened, the debt widened (yes, I ignored the Best Investment Advice I Ever Got), and the stock tanked. Which is what I get for not digging deeply enough into the operational and financial aspects of the company. Yes, Virginia, these are important. Lesson learned.

Chris Baines: "The trend is your friend." If I had a penny for every time I've heard this, I'd be a trillionaire. Unfortunately, this piece of "wisdom" is not true for any real investor. (I'll grant you, the trend is the friend of journalists looking for clicks.)

As an investor, the trend is not your friend, it's your worst nightmare. When the stock marketpeaked in 2000 the trend was up. When the stock market bottomed in 2009 the trend was down. Let valuations be your guide instead of letting a stranger's actions dictate your moves. That's what the best investors have historically done (I'm thinking Buffett and Peter Lynch) and will continue to do.

Jacob Roche: "Be diversified" can be a useless bit of advice.

A lot of investors use the Peter Lynch "buy what you know" approach and buy shares of companies like Apple, Starbucks, Disney, and Coach and think they're diversified. After all, they've got technology, restaurants, entertainment, and apparel, a diverse-sounding group of sectors. But each of those sectors is highly dependent on consumers, so the true risk remains the same.

Even if an investor buys a broadly diversified S&P 500 index fund, his or her investments are still heavily weighted toward the United States, and even if an investor buys an even morediversified Morgan Stanley Capital International All-Country World Index fund, he or she isstill betting everything on stocks, while ignoring other asset classes like bonds, real estate, and other alternatives.
Diversification as a concept is deceptively simple and lulls many investors into a false sense of security, but experts are still arguing over what risk is, exactly, and what diversifying means. The reality is that there is no magic wand to wave risk away, and while broad diversification is good, an investor should still be cognizant of the risks he or she is taking.

Tim Brugger: There was a time not so long ago when municipal bonds were high on my investment priority list. Limiting my tax bill -- even at the expense of longer-term growth -- was very appealing. It was my own, personal stand against the IRS and state tax man.

As I conducted my due diligence, I came across a local bond trader and decided to give him a shot. After discussing various laddering strategies and reviewing alternatives, he said something that still causes a snicker from me today.

"The great thing about municipal bonds, beyond the obvious tax benefits, is that it really doesn't matter if they're investment grade or not. I mean, it's not like a city or county is going to go bankrupt or anything."

Oops.

Dan Newman: I started reading the ZeroHedge website about a year ago, and while entertaining and a good view from one extreme side of things, the main takeaway ofbuying gold, guns, and shelf-stable food would have severely underperformed the market. Pessimism about the economy will always be around, and should be considered, but if you squirrel away all your money, precious metals, and cans of beans and wait for the apocalypse, you may only be right once. Meanwhile, if you invest in value-generating businesses, you can help create wealth and a better society, and ensure your future until doomsday happens.

Evan Niu, CFA: Try to use technical analysis. As a former registered broker, I've had my fair share of experience with literally thousands of traders attempting to time the market by reading charts and picking up on technical signals. It's a losing proposition the majority of the time, in my opinion. A few will make it work, but far many will lose trying.

Andrew Marder: I'll probably repeat it until I die, but nothing has caused me more heartache than investing in companies that I know -- thanks, Mr. Lynch. It's my own fault, but I tend to really know, from actual experience, two kinds of companies: boring companies and banks. Here's a tip, don't invest in either of those two.

The first batch isn't so bad. I know Williams-Sonoma, and it's starting to do some really good things. I know Starbucks, but knew it best when it was flopping around like a missed fish at Pike Place. And I know Barnes & Noble. The second basket is less boring, and is instead a little nightmare. Not only do I know banks, I know British banks. Reading the annual reports requires a homemade Enigma Machine, and even then it's not always clear why the stock does whatever it does. 

So I've tweaked that advice: Invest in companies that you, your oldest friend, and a college kid know. That should keep you out of the slowest, and most dangerous, stocks.

Keith Speights: The worst investment advice I ever received was that buying individualstocks was too risky. I held back from buying stocks and only put my money into mutual funds for years. While there certainly is a level of risk in buying stocks, risk exists with any form of investing. The better advice would have been to be aware of the risks in buyingindividual stocks and learn how to manage that risk (through diversification, for example).

Sean Williams: I know this might sound brutally counterintuitive, but the absolute worst advice I've ever latched onto was Peter Lynch's advice to "buy what you know." Now don't get me wrong, I whole-heartedly agree that you should be able to describe what the company you own does as if you're telling it to a child, but Lynch's investing mantra boxed me into researching a very small swath of companies.

Since abandoning Lynch's market view years ago I've uncovered an incredible number of gems that I would never have discovered had I not actively sought out new ideas, concepts, and technologies. Investing is a constant learning process and Peter Lynch's investing thesis was curbing that want to expand my investing universe.

Chuck Saletta: The worst investment advice I ever got came from a broker who talked me into a high sales charge, high ongoing fee, and high churn technology fund in the mid-1990s. I was still in school and wanted a way to invest my summer earnings, and he was very eager to turn my hard-earned cash into commissions for himself. The tech bubble was in the process of forming, yet somehow (probably due to the charges, churn, and fees), my fund never seemed to rise all that much.

Fortunately, I did sell the fund before the eventual tech bubble burst -- but not due to any incredible flash of investing brilliance. I simply needed a down payment for my car, and that was the only real savings I had.

Alex Dumortier, CFA: In the mid-2000s, I bought the shares of Journal Register, a publisher of local newspapers, after reading the analysis of a fundamentally oriented research organization. The thesis was that the shares were cheap enough to account for a heavy debt load and the secular decline of the newspaper business. The shares just got cheaper and cheaper and the research organization was forced to bring its valuation downmultiple times. I ultimately exited the investment for a near total loss and the company filed for bankruptcy. This month, Journal Register filed for bankruptcy again. The lesson here is that no margin of safety is great enough when investing in a business with declining economics. That may not be an absolute rule, but behaving as if it were will spare you plenty of aggravation. There are easier ways to make money.

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