Stock Strategy Mistakes
Tuesday, December 5th, 2006
The one thing that marks out a novice stock investor is whether there’s been adequate thought to the investment strategy. More often than not, this is where new investors fail; and in failing, lose more than they can afford.
By far, the most common mistakes are of two kinds :
1) Not having a strategy
“I don’t know where I’m going, or where I am right now; but I do believe I’ll get somewhere. ”
If someone told you that, would you think that he’d get anywhere? But funnily enough, people believe that stock investing works that way - you throw enough money, and some of it should stick.
Yes, there is a “dartboard” theory of investing, that random investments do as well as well-researched options - but do you want to take that chance? Random probability works best when you have a large enough portfolio and enough money to ride out the troughs; sadly, when you start small, one random downturn is enough to wipe you out.
2) Investment tips
This is where it goes from bad to worse. Some people believe that depending on stock tips pays off. Especially when it comes from a pal’s girlfriend’s hairdresser who got it from another customer dating a stock broker.
In reality, most stock “tips” serve the tipper’s purpose; of generating some interest sufficient to drive up the price in the short run, giving him an opportunity to sell out at a profit. Most tips don’t pay off; if they do, it’s more from random chance than from any other factor.
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