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Four Investing Mistakes to Avoid
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Livermore
Master |
20-Sep-2007 12:37
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I have highlighted many times in the past. The greatest gains are made but holding more than too much trading. Refer to Kilroy's mail on point number 3 below. "I can name ten investors on the Forbes list, but not one person who made their fortune from frequent trading." In the market it is important to be flexible. Even though I am a value investor, I also intend to use some TA to learn how to sell. That would greatly increase my profit in the long run. |
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KiLrOy
Master |
20-Sep-2007 11:22
Yells: "I buy only what I can see." |
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The article aims at the VALUE INVESTORS and talks about managing a portfolio. If you are a trader or a punter, the article MAY not make any sense to you. left_bug, as long as your understand AND accept the risks that comes with wanting to 'build money that you can sit for ten years' in the stock market, you do not need to get out of it. The constant short term whipsaw and gyrating of the price action will typically knocks traders of OR make quick gains for them. I am a value investor in the SG STOCK (though its a bit kelong for some stocks) and a trader in the FX arena so managing a SG stock portfolio means a lot to me. I am not one that has to beat the index year to year (which I am happy to share some article on that), or have to the need for the money invested in the stock within the next 5 - 10 years. Rather then to hand my money to a fund manager, I manage my portfolio in value stocks and aim to get a return of 8 - 12% annually in the next ten years in capital appreciation and dividends. |
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left_bug
Senior |
20-Sep-2007 10:38
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Well, I think portfolio is for long term investor. The author of this article don't like short term investment. I got no money I can sit on for ten years. Does that mean I should get out of the stock market? I came to the stock market to build money I can sit for ten years. Come on baby get your money not needed for ten years rolling. Rich get richer. Money roll more money. (qian gun qian) |
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ten4one
Master |
20-Sep-2007 09:55
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I think the worst Investment Mistake is not understanding what you're doing. To know is one thing and to understand what you know is another. Knowledge without understanding is like power without controll - it is more destructive than constructive! Cheers! |
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KiLrOy
Master |
20-Sep-2007 09:18
Yells: "I buy only what I can see." |
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x 2
x 0 Alert Admin |
Don't Become Your Portfolio's Worst EnemyInvesting Mistake 1: Spreading your investments too thinOver the past several decades, Wall Street has preached the virtues of diversification, drilling it into the minds of every investor within earshot. Everyone from the CEO to the delivery boy knows that you shouldn't keep all your eggs in one basket - but there's much more to it than that. In fact, many people are doing more damage than good in their effort to diversify. Like everything in life, diversification can be taken too far. If you split up $100 into one hundred different companies, each of those companies can, at best, have a tiny impact on your portfolio. In the end, the brokerage fees and other transaction costs may even exceed the profit from your investments. Investors that are prone to this "dig-a-thousand-holes-and-put-a-dollar-in-each" philosophy would be better served by investing in an index fund which, by its very nature, is made up of many companies. Additionally, your returns will mimic those of the overall market in almost perfect lockstep. Investing Mistake 2: Not accounting for time horizonThe type of asset in which you invest should be chosen based upon your time frame. Regardless of your age, if you have capital that you will need in a short period of time (one or two years, for example), you should not invest that money in the stock market or equity based mutual funds. Although these types of investments offer the greatest chance for long-term wealth building, they frequently experience short-term gyrations that can wipe out your holdings if you are forced to liquidate. Likewise, if your horizon is greater than ten years, it makes no sense for you to invest a majority of your funds in bonds or fixed income investments unless you believe the stock market is grossly overvalued. Investing Mistake 3: Frequent tradingI can name ten investors on the Forbes list, but not one person who made their fortune from frequent trading. When you invest, your fortune is tied to the fortune of the company. You are a part-owner of a business; as the company prospers, so do you. Hence, the investor who takes the time to select a great company has to do nothing more than sit back, develop a dollar cost averaging plan, enroll in the dividend reinvestment program and live his life. Daily quotations are of no interest to him because he has no desire to sell. Over time, his intelligent decision will pay off handsomely as the value of his shares appreciates. A trader, on the other hand, is one who buys a company because he expects the stock to jump in price, at which point he will quickly dump it and move on to his next target. Because it is not tied to the economics of a company, but rather chance and human emotion, trading is a form of gambling that has earned its reputation as a money maker because of the few success stories (they never tell you about the millionaire who lost it all on his next bet... traders, like gamblers, have a very poor memory when it comes to how much they have lost). Investing Mistake 4: Fear based decisionsThe costliest mistakes are usually fear based. Many investors do their research, select a great company, and when the market hits a bump in the road - dump their stock for fear of losing money. This behavior is absolutely foolish. The company is the same company as it was before the market as a whole fell, only now it is selling for a cheaper price. Common sense would dictate that you would purchase more at these lower levels (indeed, companies such as Wal-Mart have become giants because people like a bargain. It seems this behavior extends to everything but their portfolio). The key to being a successful investor is to, as one very wise man said, "... buy when blood is running in the streets." The simple formula of "buy low / sell high" has been around forever, and most people can recite it to you. In practice, only a handful of investors do it. Most see the crowd heading for the exit door and fire escapes, and instead of staying around and buying up a company for ridiculous levels, panic and run out with them. True money is made when you, as an investor, are willing to sit down in the empty room that everyone else has left, and wait until they recognize the value they left behind. When they do run back in, you will be holding all of the cards. Your patience will be rewarded with profit and you will be considered "brilliant" (ironically by the same people that called you an idiot for holding on to the company's stock in the first place). |
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