Subject: Advice - Errors in Investing

Last-Revised: 2 Aug 1999
Contributed-By: Chris Lott (contact me), Thomas Price (tprice at engr.msstate.edu)

This summarizes a Wall Street Journal's article on Investment Errors and how to avoid them (published June 18, 1991, pages C1/C10). The errors are:

  • Not following an investment objective when you build a portfolio.
  • Buying too many mutual funds.
  • Not researching a one-product stock before you buy.
  • Believing that you can pick market highs and lows (time the market).
  • Taking profits early.
  • Not cutting your losses.
  • Buying the hottest {stock, mutual fund} from last year.

Here's a recent quote that underscores the last item. When asked "What's the biggest mistake individual investors make?" on Wall $treet Week, John Bogle, founder and senior chairman of Vanguard mutual funds, said "Extrapolating the trend" or buying the hot stock.

On a final note, get this quote on market timing:

In the 1980s if you were out of the market on the ten best trading days of the decade you missed one-third of the total return.

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