15 Common Mistakes Most Investors Make

15 Common Mistakes Most Investors Make

1. Most investors never get past the starting gate because they do not use good selection criteria. They do not know what to look for to find a successful stock. Therefore, they buy fourth-rate "nothing-towrite- home-about" stocks that are riot acting particularly well in the
marketplace and are not real market leaders.

2. A good way to ensure miserable results is to buy on the way down in price; a declining stock seems a real bargain because it's cheaper than it was a few months earlier.


3. An even worse habit is to average down in your buying, rather than up. If you buy a stock at $40 and then buy more at $30 and average out your cost at $35, you are following up your losers and mistakes by putting good money after bad. This amateur strategy can produce serious losses and weigh you down with a few big losers.

4. First-time speculators want to make a killing in the market. They want too much, too fast, without doing the necessary study and preparation or acquiring the essential methods and skills. They are looking for an easy way to make a quick buck without spending any time or effort really learning what they are doing.

5. Investors buy second-rate stocks because of dividends or low price-earnings ratios. Dividends are not as important as earnings per share; in fact the more a company pays in dividends, the weaker the company may be because it may have to pay high interest rates to
replenish internally needed funds that were paid out in the form of dividends. An investor can lose the amount of a dividend in one or two days' fluctuation in the price of the stock. A low P/E, of course, is probably low because the company's past record is inferior.

6. People buy company names they are familiar with, names they know. Just because you used to work for General Motors doesn't make General Motors necessarily a good stock to buy. Many of the best investments will be newer names you won't know very well but could and should know if you would do a little studying and research.

7. Over 98% of the masses are afraid to buy a stock that is beginning to go into new high ground, pricewise. It just seems too high to them. Personal feelings and opinions are far less accurate than markets.

8. The majority of unskilled investors stubbornly hold onto their losses when the losses are small and reasonable. They could get out cheaply, but being emotionally involved and human, they keep waiting and hoping until their loss gets much bigger and costs them dearly.

9. In a similar vein, investors cash in small, easy-to-take profits and hold their losers. This tactic is exactly the opposite of correct investment procedure. Investors will sell a stock with a profit before they will sell one with a loss.

10. Some investors have trouble making decisions to buy or sell. In other words, they vacillate and can't make up their minds. They are unsure because they really don't know what they are doing. They do not have a plan, a set of principles, or rules, to guide them and, therefore,
are uncertain of what they should be doing.

11. Most investors cannot look at stocks objectively. They are always hoping and having favorites, and they rely on their hopes and personal opinions rather than paying attention to the opinion of the marketplace, which is more frequently right.

12. Investors are usually influenced by things that are not really crucial, such as stock splits, increased dividends, news announcements, and brokerage firm or advisory recommendations.

13. Individual investors worry too much about taxes and commissions. Your key objective should be to first make a net profit. Excessive worrying about taxes usually leads to unsound investments in the hope of achieving a tax shelter. At other times in the past, investors lost a
good profit by holding on too long, trying to get a long-term capital gain. Some investors, even erroneously, convince themselves they can't sell because of taxes—strong ego, weak judgment.
Commission costs of buying or selling stocks, especially through a discount broker, are a relatively minor factor, compared to more important aspects such as making the right decisions in the first place and taking action when needed. One of the great advantages of owning stock over real estate is the substantially lower commission and instant marketability and liquidity. This enables you to protect yourself quickly at a low cost or to take advantage of highly profitable new trends as they continually evolve.

14. The multitude speculates in options too much because they think it is a way to get rich quick. When they buy options, they incorrectly concentrate entirely in shorter-term, lower-priced options that involve  greater volatility and risk rather than in longer-term options. The limited time period works against short-term option holders. Many options
speculators also write what is referred to as "naked options," which are nothing but taking a great risk for a potentially small reward and, therefore, a relatively unsound investment procedure.

15. Novice investors like to put price limits on their buy-and-sell orders. They rarely place market orders. This procedure is poor because the investor is quibbling for eighths and quarters of a point, rather than emphasizing the more important and larger overall movement.
Limit orders eventually result in your completely missing the market and not getting out of stocks that should be sold to avoid substantial losses.