Hello All,
Here are a few thoughts on common mistakes made by novice investors.
1) Racking Up Credit Card Debt. – Credit card debt is the worst kind of debt possible. You usually have to pay a high rate of interest and you can’t deduct the taxes. Also, a high credit card balance sucks away income that you could be putting in sound investments. Generally speaking its not a good idea to borrow against your credit card to invest.
2) Buying Cheap Stocks. – Very often stocks that trade for less than $10 a share have problems with their fundamentals. For example, they may be suffering from deteriorating sales or heavy debt. They may also be having management issues – for example the CEO may have lost perspective or there may be misconduct problems driving the price down, such as allegations of fraud or embezzlement.
3) Paying Attention to Hype. If you seriously get into investing, you’ll find that many people have strong views on particular issues. Try going into the fool.com or yahoo investing boards and you’ll find opinions aplenty. The financial media also provides a diversity of views, and some entertainers like Jim Kramer make a living giving their opinions. – Ignore these guys. The best way to review an analysis is to do “due diligence” that is, review the relevant prospectus or financial statements to examine the business and financial structure of your investment. In short, ignore the hype.
4) Not Reading Dual Income No Kids. – Just kidding.
5) Not Tracking. Some personal finance gurus say investors should ignore benchmarks like the S&P 500. This is silly. Your investments should be beating the long run market averages. If they are performing worse than than indicators of the overall stock market, then you might as well sell everything and buy index funds. Your investments have to beat benchmarks otherwise you are leaving money on the table.
Best,
James
