The
Ten Booboos Of Investing
(Or, Ten Reasons Why You’re Not
Making Money In The Stock Market)
Nothing comes easy,
right? Like making money in the
stock market, for example. If
it was such a snap, everybody would
have a gold-plated portfolio. As
we all know, though, it just ain’t so!
Last year, according to the Dorsey Wright Report, the average stock
was down 40%; and this year, as
of the week ending September 24, only 38% of New York Stock Exchange stocks
are up and only 24% of NASDAQ
stocks are up. The Dow is up
about 17% in the same time frame.
There are plenty of
reasons why you are not making money. In
fact, more reasons than I can list in this column. But we’re all subject to them. That
last sentence was supposed to make you feel better. If it didn’t, let me add this: many of the reasons are
beyond your control. Economic
and political events from around the world can send a stock into a tailspin
on a moment’s notice. I’m
sure you’ve seen this happen. However,
many of these reasons are avoidable.
Here’s a list of 10
of the most common booboos people make with their investment dollars.
If you can avoid any of
them, you’ll be that much closer to “financial heaven.”
1.
UNCLEAR INVESTMENT OBJECTIVES - Are you a long term
investor? Do you need to
preserve capital and use it to generate current income?
Do you need a plan for a changing lifestyle? Knowing what you are trying to achieve with your money will
help clarify your specific investment goals.
2. LACK OF KNOWLEDGE
- It is important to know how each stock or bond you buy fits into your
overall portfolio. How does
each security compare with others that have a similar return potential?
Is the investment liquid? What
are the risks?
3. CHANGES IN MARKET CONDITIONS
- While investing for the long-term tends to smooth out the
short-term fluctuations in the financial markets,
you should be aware of, and responsive to fundamental changes.
If, for example, there’s an overabundance of oil on the market, you
may want to switch out of oil related stocks.
4.
PORTFOLIO HOLDINGS ARE INCONSISTENT WITH YOUR GOALS -
The stocks you own may be too risky - or not risky enough - for your
investment objectives. Your
current and/or future needs , and your tolerance for risk are the basic
parameters that should influence your investment decisions.
5.
LACK OF DIVERSIFICATION IN YOUR PORTFOLIO -
Selecting too many different securities can diminish the significance of an
individual holding. On the flip
side, not enough diversification can put a disproportionate amount of risk
on one holding, one industry, or one type of investment.
6.
IGNORANCE
OF TAX LAWS -
When do you sell a stock to take advantage of long-term
capital gains? How about
short-term capital losses? When
would a tax free municipal bond be more appropriate than a corporate bond? What options do you have to save for retirement? How much
money can you contribute to your current retirement plan? You must do your homework.
7.
PROFITS
ARE TAKEN TOO SOON - Investing is a long term process,
trading is not.
8.
LOSSES
ARE ALLOWED TO RUN -
If an investment performs poorly, you may be better off cutting your losses short rather than waiting for a rebound
that may never come.
9. OVERLOOKING THE TIME VALUE OF MONEY -
Don’t forget the value of your money compounding over time;
that includes dividends and interest, too.
And since you’re committing things to memory, remember that
inflation can erode the purchasing power of your dollars over time.
10.
UNREALISTIC EXPECTATIONS - Building
a quality portfolio takes time, patience, discipline and a basic
understanding of the fundamentals of investing.
Set goals for yourself and develop a sound financial plan.
If you can’t do it alone, don’t be embarrassed to get help.
Dana Goldfarb is
a broker for Sutro & Company In Woodland Hills
Ca.
And Can Be Reached At (818) 313-8700
