| We touched briefly about common investing pitfalls | | | | check your stock price. Get the idea here? While you |
| here. Here is a more comprehensive list. Some of it | | | | may check your stock quote anytime you want, but |
| may happen to the more experienced investors as | | | | your time may be best served by doing other things. |
| well. This serves as a guide for Novice Investors: | | | | Finding the next best investment opportunity is one |
| Investing with debt. You should not invest when you | | | | such thing. |
| still owe a lot of money in your credit card. Credit | | | | Paying Too Much Attention to Past Result. A stock |
| card interest can run to as high as 20% while in the | | | | just drop 20% in a week and you figure, hey it is |
| long run, investing in the market indices can give a | | | | cheap. It has a P/E (Price over Earning) ratio of 7 ! |
| 10.1 % return historically. | | | | Isn't that cheap? Err...it depends. If you were talking |
| Not Starting Now. By now, you should have known | | | | about forward P/E, then of course the stock is |
| that compounding works its magic in longer time | | | | cheap. But if you were talking about trailing P/E while |
| frame. The sooner you start, the longer time you let | | | | your analysis shows that this company will never turn |
| compounding do its magic and the larger your savings | | | | a profit ever again, then the stock is not cheap. An |
| will be at retirement age. | | | | example would be looking at a type-writer company |
| Investing based on stock tips. Stock tips are just | | | | during 1980s. |
| that, tips. It is supposed to help you invest but not | | | | Lack of Diversification. Investing in one single stock |
| giving you a shortcut. Doing your own due diligence is | | | | can make you rich. Imagine if you have put all your |
| an absolute must even when you get stock tips | | | | money on Yahoo! in 1997. It can also break you. |
| from the so-called professional. | | | | What if you have bought into Enron stock instead? I |
| Investing for the short-term. The easy access of | | | | believe your most important investing goal is capital |
| internet makes it cheaper for small investors to buy | | | | preservation, not capital appreciation. Once you have |
| stocks online. However, short-term trading is not | | | | picked a solid company, capital appreciation will follow. |
| going to work, no matter how small your commission | | | | Over diversification. Contrary to lack of diversification, |
| is. It is extremely hard to predict short-term | | | | Over diversification will give your portfolio a mediocre |
| movement of stocks. Traders come and go and | | | | return. Furthermore, having 500 different stocks on |
| those that stay seldom beat the market in the long | | | | your portfolio will cost a significant amount of |
| run. Furthermore, what do you prefer? Spending a | | | | commission. The ideal portfolio in my opinion should |
| few hours each week and making a 14% return on | | | | consist of between 7 to 15 different stocks. |
| your investment? Or spending 8 hours a day where | | | | Ignoring Insider's Activity. Insiders are generally |
| the odd of beating the market is slim? I would prefer | | | | people with ownership of a company and who know |
| to spend just a few hours a week, of course. | | | | the inside working of a company. While insider selling |
| Buying stocks because the price is 'low'. Yeah. That's | | | | may not be negative signs, a spike in this insider |
| right. It is tempting for a lot of people. They figure, if | | | | selling may spell trouble. Insider buying on the other |
| a $ 1 stock can rises a few cents, they will make 20 | | | | hand signals a vote of confidence for the company. |
| or even 50 % of their investments !! Sure, you can. | | | | Buying Stocks On Margin. While using margin can |
| But the reverse holds true as well. With a few cents | | | | enhance your return in a rising market environment, |
| of movement, you can lose 20 or even 50% of your | | | | the reverse occurs when your stock price drops. As |
| investment ! | | | | always, the most important goal of an investor is |
| Investing in sectors you have no clue of. | | | | capital preservation, not chasing the highest return. |
| Biotechnology and RFID sounds cool. However, unless | | | | The Desire to Be Fully Invested. While having all your |
| you are really really familiar with it, there is no reason | | | | portfolio fully invested is a good thing, sometimes |
| to invest in it. You may know how Voice Over IP | | | | keeping cash is a better thing. I would prefer my |
| works, but do you know how does the company | | | | money to earn a 0% return rather than buying a |
| make money? If you don't, then you should stay | | | | stock that lost 50% in value. Therefore, if you |
| away from it. There are hundreds of other | | | | cannot find a good stock to invest, keep the cash. |
| companies that are easier to understand than how | | | | Investing without knowing technical analysis. We |
| gene works. | | | | believe in investing for the long haul. However, it does |
| Checking your stock price often. You read today's | | | | not mean that we blindly buy any stocks that look |
| newspapers and you go straight to the stock price | | | | undervalued. Supposed a stock A is undervalued at |
| section. You arrive at the office and the first thing | | | | $15. If technical analysis predicts a steeper fall, would |
| you do is going to Yahoo! Finance website. You went | | | | you still buy it? Of course not. We would rather buy |
| home and the first thing you do is turn on CNBC and | | | | the stock A at a lower price if all else remains equal. |