15 Common Investing Pitfalls
We touched briefly about common investing pitfalls here. Here is a more comprehensive list. Some of it may happen to the more experienced investors as well. This serves as a guide for Novice Investors: Investing with debt. You should not invest when you still owe a lot of money in your credit card. Credit card interest can run to as high as 20% while in the long run, investing in the market indices can give a 10.1 % return historically. Not Starting Now. By now, you should have known that compounding works its magic in longer time frame. The sooner you start, the longer time you let compounding do its magic and the larger your savings will be at retirement age. Investing based on stock tips. Stock tips are just that, tips. It is supposed to help you invest but not giving you a shortcut. Doing your own due diligence is an absolute must even when you get stock tips from the so-called professional. Investing for the short-term. The easy access of internet makes it cheaper for small investors to buy stocks online. However, short-term trading is not going to work, no matter how small your commission is. It is extremely hard to predict short-term movement of stocks. Traders come and go and those that stay seldom beat the market in the long run. Furthermore, what do you prefer? Spending a few hours each week and making a 14% return on your investment? Or spending 8 hours a day where the odd of beating the market is slim? I would prefer to spend just a few hours a week, of course. Buying stocks because the price is 'low'. Yeah. That's right. It is tempting for a lot of people. They figure, if a $ 1 stock can rises a few cents, they will make 20 or even 50 % of their investments !! Sure, you can. But the reverse holds true as well. With a few cents of movement, you can lose 20 or even 50% of your investment ! Investing in sectors you have no clue of. Biotechnology and RFID sounds cool. However, unless you are really really familiar with it, there is no reason to invest in it. You may know how Voice Over IP works, but do you know how does the company make money? If you don't, then you should stay away from it. There are hundreds of other companies that are easier to understand than how gene works. Checking your stock price often. You read today's newspapers and you go straight to the stock price section. You arrive at the office and the first thing you do is going to Yahoo! Finance website. You went home and the first thing you do is turn on CNBC and check your stock price. Get the idea here? While you may check your stock quote anytime you want, but your time may be best served by doing other things. Finding the next best investment opportunity is one such thing. Paying Too Much Attention to Past Result. A stock just drop 20% in a week and you figure, hey it is cheap. It has a P/E (Price over Earning) ratio of 7 ! Isn't that cheap? Err...it depends. If you were talking about forward P/E, then of course the stock is cheap. But if you were talking about trailing P/E while your analysis shows that this company will never turn a profit ever again, then the stock is not cheap. An example would be looking at a type-writer company during 1980s. Lack of Diversification. Investing in one single stock can make you rich. Imagine if you have put all your money on Yahoo! in 1997. It can also break you. What if you have bought into Enron stock instead? I believe your most important investing goal is capital preservation, not capital appreciation. Once you have picked a solid company, capital appreciation will follow. Over diversification. Contrary to lack of diversification, Over diversification will give your portfolio a mediocre return. Furthermore, having 500 different stocks on your portfolio will cost a significant amount of commission. The ideal portfolio in my opinion should consist of between 7 to 15 different stocks. Ignoring Insider's Activity. Insiders are generally people with ownership of a company and who know the inside working of a company. While insider selling may not be negative signs, a spike in this insider selling may spell trouble. Insider buying on the other hand signals a vote of confidence for the company. Buying Stocks On Margin. While using margin can enhance your return in a rising market environment, the reverse occurs when your stock price drops. As always, the most important goal of an investor is capital preservation, not chasing the highest return. The Desire to Be Fully Invested. While having all your portfolio fully invested is a good thing, sometimes keeping cash is a better thing. I would prefer my money to earn a 0% return rather than buying a stock that lost 50% in value. Therefore, if you cannot find a good stock to invest, keep the cash. Investing without knowing technical analysis. We believe in investing for the long haul. However, it does not mean that we blindly buy any stocks that look undervalued. Supposed a stock A is undervalued at $15. If technical analysis predicts a steeper fall, would you still buy it? Of course not. We would rather buy the stock A at a lower price if all else remains equal. Unrealistic Investing Goals. You heard somewhere that TravelZoo (TZOO) rises 20 fold in 2004. That's right. 2000% in a year. So, you figure, if you can pick 9-10 stocks and one of them rises 20 fold, then 50% annual return for your portfolio is a conservative goal. Well, not really. Think about this. Let's say you start investing early with $ 1000 investment. If you can maintain 50% annual return for the next 35 years, your $ 1000 will grow to $ 1.46 Billion. Sure, you can have a good winning streak of 50% return for several years. But the odd is, you won't achieve that for 35 years in a row.
Other Trading Tips Articles
Currency Trading Psychology - Controlling your Emotions The fact is, the majority of traders lose because they cannot control their emotions - and their emotions cause them to make irrational trades and lose.Trading psychology is one of the keys to investment success, but its impact is not understood by many investors, who simply think they need a good trading method, but this is only part of ...Financing Structure Tips Let us first examine the various parties involved in a financing transaction. On one side of the playing field there is the private company in the process of raising capital. On the other side there are the investors. Investors may include, family and friends, Angel Investors, Private Equity Firms (also known as Venture Capital Firms) and Hedge ...English And Its Usage In The Workplace English language is widely used in two kinds of communication in workplace. It can be used among members of the same or a closely related profession. In other cases, it can be used when a member of the profession is dealing with a member of the public. In this essay, I will discuss the choice of language, the use of jargon and different features ...Tips for a Healthy Relationship Many couples start losing interest in the activities they do after a passage of time. They think their relationship has become bored and start having arguments over small matters. It has also been seen that many of them even start thinking about separation by looking at the frequency of fights they have each day. This article will help you disco ...Screenwriting and The Hero's Journey - Lord of War (2005) Deconstructed The Hero's Journey is the template upon which the vast majority of successful stories and Hollywood blockbusters are based upon – understanding this template is a priority for story or screenwriters.The Hero's Journey:· Attempts to tap into unconscious expectations the audience has regarding what a story is and how it should be tol ...The EURO 12 member countries of the European Union adopted the Euro in 1999. (Denmark, Sweden and UK are using their own currency only). Investors used to invest domestically mainly, but with the Euro introduction more investors are now attracted to euro areas. Euro is a floating exchange rate, therefore market demand and supply controls the value of the ...Top Ten Ways to Manage Interruptions So many people I worked with said they got more work done at home than in the office. That was because there were so many interruptions in the office. In fact lots of people come in early or stay late just to have quiet time to work. One way to have that same quiet time during the day is to manage interruptions. Look for ways to create a “Po ...10 E-mail Organization Tips Who doesn't have issues with organizing their inbox!? I receive close to 600 e-mail each day due to the variety of activities and contacts I have online. Some I am truly interested in their content - most I am not.A big part of keeping your inbox and your e-mail organized is discipline. Yep, good ole' fashioned discipline! You need to mak ...Use Multiple Streams Of Internet Income To Become Rich How are so many people becoming rich with an online income? How can you become rich with an online income? How are so many people using multiple streams of internet income to become rich?The reason that so many people are becoming rich from the internet is because they are using multiple streams of income. None of them get rich off of ...Credit Card Fraud Prevention - Advice for Online Merchants Finding a fraudulent transaction on a credit card statement can be an extremely distressing experience for a card holder. However, credit card fraud has two victims – the person whose card details have been stolen and the merchant whom the fraudulent transaction was made with. When people think of this crime the second of these is often overlook ...Exchange-Traded Funds are an Interesting Alternative to Mutual Funds Exchange-traded funds (or EFT for short) have recently become a more and more interesting alternative to classic mutual funds. As of today, there are over 175 EFTs accumulating over 200 billion dollars - and these numbers are growing. While it is improbable for EFT to completely supersede classic mutual funds (at least in the near future), they ...Investor or Trader... Which Are You? Most market participants consider themselves to be "investors." But if you look at a list of the really big winners on Wall Street, you will see that most of those who make big profits, list themselves as "traders."By "big profits" we mean doing better than the S&P 500 Index or Nasdaq 100 Index by a substantial margin over any three year ...What is Wikipedia? A Guide to the Most Unique Encyclopedia on the Net Wikipedia is an open source encyclopedia, a website where anyone can write and post an article on any topic of their choice. The site has been a remarkable success, with thousands of amateur authorities weighing in on an infinite variety of topics. As of the summer of 2005, Wikipedia was home to nearly 850,000 articles in English alone, with man ...Choosing A Forex Trading System - Part 4 In the last part of our series we explored a few key performance measures to help us in choosing a Forex trading system.Here’s our example:Let’s take another look at our example:Trading System A PerformanceNumber of trades = 1000 % of Winning trades = 92% % of Losing trades = 8% Average Winning trade = ...The History Of Interest Throughout Time Although I am sure that someone at the State Department will argue otherwise, Cyrus The Great (590 – 529 BC), founder of the Persian Empire, was no terrorist. Quite far from it. Although one might not have wanted him as next-door neighbor, Cyrus II of Persia was very illuminated for his times, according to the Greek historian Herodotus. ...Discover the Biggest Trading & Investing Online Mistake Any online investor / trader seeks an excellent off or online future trading career opportunity. Despite this goal, did you know 95 percent of all traders go broke within the first two months? Why do investors lose vast amounts of wealth in one or more of the following markets – option trading, forex trading or currency trading, stock trading, ...Forex Trading Courses To put things simply, Foreign Exchange (FOREX) Trading is the buying and selling of international currencies. Just like any other work you engage in, you need to have a basic knowledge on what makes the industry work and how it works, in order to make decisive analysis and intelligent decisions on each transaction. If you do not have any idea on ...Why Splits Are Exciting and Profitable One thing that generally gets us smiling is when we have a mess of good companies doing splits when the overall market tone stinks. Why? Well think about it for a minute. If XYZ announces that they are going to do a 2 for 1 split and the stock is at 100, it stands to reason that they will be trading in the 50's in the near future. But, if befor ...Brokerage Fee You want to open a brokerage account but you can not seem to have a good conviction about the brokerage fee and account minimums. Yet you are certain that you want to start with a brokerage-trade. So what should you do?First of all account minimums are (ought to be) only small ones – as low as $500 for example. However, account minimums d ...Tips for Remembering Names Is remembering names a challenge for you? It sure is for me. Sometimes I feel incredible embarrassment when I have forgotten the name of a person who was introduced to me 30 seconds ago. If you suffer from "can't remember names syndrome," consider the following tips.1. Give your full attention to the introduction. Don't get caught shaking ...3 Powerful Tips for Becoming a Financial Master Mind Not long ago, I received a question from one of my newsletter subscribers that went something like this (I've edited out the personal details):"Hi Tony Mase, I am faced with a rather complex situation. I agree 100% with everything I read in Wallace D. Wattles' book, but I am so deep in financial difficulty that whenever I try not to ponde ...Venture Capital Firms While the terms and conditions of venture capital are not standardized, there are some salient features of venture capital arrangements. The venture capital firm is inclined to assume a high degree of risk in the expectation of earning a high rate of return. The venture capital firm, in addition to providing funds, takes an active interest in gu ...7 Reasons Why Training Doesn't Produce the Desired Results and What You Can Do To Seven Reasons Why Training Doesn’t Produce the Desired Results and What You Can Do To Improve Your ResultsOverviewAbraham Maslow said, “If the only tool you have is a hammer, every problem looks like a nail.” As managers, leaders and change agents, we want to improve our organizational performance. Often training is ...Candlestick Charting – Adding a Visual Dimension To Your Trading Candlestick charting is great for traders wanting an extra edge in their quest for profits - this is due to the way the candle bodies are drawn, that gives a better insight that is visual, and shows trader psychology.More traders than ever are using candlestick charts due to the extra trading edge they can get with this form of charting - ...Debt Consolidation - Be Careful When Trading in Your Car The automobile has long been recognized as the classic American status symbol. America’s millions of miles of roads and overall lack of long-distance mass transit leave the automobile as the primary method of transportation for most Americans. Because so many people spend so much time in their cars, they often use them to make a personality st ...Home Teeth Whitening Tips About a decade ago, people knew only one way of getting their teeth whitened- that was through dental in-office whitening. It was a wearisome procedure but slowly when people started showing a compulsive concern of having a whiter set of teeth, the impulsion goaded a number of different bleaching formulas and teeth whitening kits started floodin ...Meeting Management: Ten Tips for Profitable Meetings One of the main complaints heard by human resource professionals and team managers has to do with an avoidable and a controllable problem… wasteful meetings. Most business organizations have too many meetings that waste time and drain money. Profits and morale can be severely impacted by poor meeting management.As a guide to meeting manag ...
|
