Common Investment Mistakes

Avoid common investment mistakes and follow the following advise.

1. Create an investment plan.

Without a plan, your investments will be haphazardly selected with a shoot from the hip style.  Investors should decide the type of company they want to own — growth companies, cyclical firms or speculative ones.  You need to decide if you want current income or capital gains. Don’t abandon your plan when there is a bull or bear market.

2. Take the Time to be Informed.

The most common form of investment mistake is to forget to get information about a company’s finance. It it too common that investors buy stock without even checking what the company makes or what the future might be for that kind of product.

3. Check the Quality of Your Advice.

Many investors don’t check on their broker or adviser’s investment success before investing with them. They rarely check out their educational or professional background.

4. Do Not Invest Money that Should be Set Aside for Other Use.

People invest money that should be set aside for emergencies or for other urgent expense. If you invest with money that should have been set aside for emergencies, you may be forced to sell at a loss.

5. Be careful not to be Optimistic at the Top and Pessimistic at the Bottom.

Optimism and bullishness are infectious, as are pessimism and bearishness. Thus, even when the market is high, people go right on buying. They do it because everyone seems to be buying. They assume that nothing will change and that the bull market will continue.

Conversely, people grow increasingly pessimistic as the market drops. Often they reach the  bottom when stocks are cheapest. This may be when you should be buying.

6. Avoid Buying on the Basis of Tips and Rumors.

It is rare that people get inside information that has any value for a publicly held company. Even if you do, it is typically old and out of date.  No matter how hot a tip you hear, plenty of people knew it before you did.

7. Do Not Become Sentimental About a Stock.

Some investors grow attached to their stocks. They hold their stocks long after the potential for profit is gone. The other type of mistake is to ignore the fact that you were wrong about buying a stock.

8. Avoid Buying Low-Priced Stocks Assuming that they will Have Best Returns.

A low-priced stock may seem like a bargain but not because it is a low priced stock. The price of a stock is what the marketplace believes the company is worth divided by the number of outstanding shares. Stocks that have a low price are seen by the market to having little value. Period.