Top Ten Investment Mistakes|
Barbara Kimmel and
1. Lacking an investment plan a/k/a/ “Don't take a trip
without packing the map”. A pre-planned asset allocation generates positive
results and eliminates emotional panic selling.
2. Buying cheap stocks a/k/a “Road crews erect "Dead End" signs for a
reason”. Most stocks with low share prices also arrive at the bottom for a
reason. There must be institutional interest to influence price, and many won't
even glance at stocks below $8 or $10.
3. Purchasing story stocks a/k/a “A good fable lulls a child to sleep”. Don't
get taken by compelling “story” stocks. The plots include a cure for cancer, a
big oil strike or a revolutionary invention. Such promising stories rarely prove
true. If the “story” materializes, the company will still be a buy.
4. Selling your winners a/k/a “You gotta know when to hold ‘em’”. Don't sell
your winners. These companies combine outstanding management, product and cash
flow, creating steady growth for years. Holding these companies for the long run
will compensate for other investing mistakes. In fact, one or two big winners
can create real wealth.
5. Holding onto a peaked stock a/k/a “Trees don't reach to the heavens, and
companies don't continue growth beyond reason”. Top companies peak for reasons
such as attrition of top management or competition. Systematic pruning will help
you avoid a rotting, unhealthy investment.
6. Under diversification a/k/a “Ideas are good, but a mind full of them is
better”. Resist the urge to rely on a few stocks that you know. Lack of
portfolio diversification leads to erratic and volatile returns, and owning
several companies in the same industry also isn't diversification. The best
investment results happen by investing in leading companies across various
7. Over diversification a/k/a “A portfolio stretched like an old T-shirt
won't help an investor benefit from their insight”. You don't create
diversification by spreading yourself too thin. Although a mind full of ideas is
good, ideas acted upon on a whim waste good thoughts.
8. Over trading a/k/a “Replanting a garden every week won't produce
high-quality tomatoes”. Don't follow market “noise” and bounce from sector to
sector or theme to theme. This prevents investors from enjoying the rewards of a
long-term winner. Give stocks enough time to mature and compound.
9. Too much margin a/k/a “Living on borrowed time brings a rush of
excitement, but it’s a quick trip when time expires”. Don't underestimate the
damage margin can create. The relatively low cost and ease of obtaining leverage
takes investors down a dangerous path. When a portfolio on margin declines
rapidly, it can catch even experienced investors off guard.
10. Too many options a/k/a “In life there’s always options, (but timing makes
the difference”). When you buy options, you must be right and use impeccable
timing. Options allow an investor to use leverage and control more shares but
there are relatively high spreads involved in trading them. Many times investors
lose money on their transaction even after they followed correct assumptions.
Mr. Kimmel is a private money manager and the author of “Magnet Investing,
build a portfolio and pick winning stocks using your home computer”. His
methodology was the subject of a Forbes Magazine article (June, 2004).
Barbara Kimmel is an award winning publisher and publicist at Next Decade,
Article Source: http://EzineArticles.com/