Subject: Advice - One-Line Wisdom
Last-Revised: 22 Aug 1993
Contributed-By: Maurice Suhre
This is a collection of one-line pieces of investment wisdom, with brief explanations. Use and apply at your own risk or discretion. They are not in any particular order.
- Hang up on cold calls.
- While it is theoretically possible that someone is going to offer you the opportunity of a lifetime, it is more likely that it is some sort of scam. Even if it is legitimate, the caller cannot know your financial position, goals, risk tolerance, or any other parameters which should be considered when selecting investments. If you can't bear the thought of hanging up, ask for material to be sent by mail.
- Don't invest in anything you don't understand.
There were horror stories of people who had lost fortunes by being
short puts during the 87 crash. I imagine that they had no idea of
the risks they were taking. Also, all the complaints about penny
stocks, whether fraudulent or not, are partially a result of not
understanding the risks and mechanisms.
- Also stated as ``There ain't no such thing as a free lunch (TANSTAAFL).'' Remember, every investment opportunity competes with every other investment opportunity. If one seems wildly better than the others, there are probably hidden risks or you don't understand something.
- If your only tool is a hammer, every problem looks like a nail.
- Someone (possibly a financial planner) with a very limited selection of products will naturally try to jam you into those which s/he sells. These may be less suitable than other products not carried.
- Don't rush into an investment.
- If someone tells you that the opportunity is closing, filling up fast, or in any other way suggests a time pressure, be very leery.
- Very low priced stocks require special treatment.
- Risks are substantial, bid/ask spreads are large, prices are volatile, and commissions are relatively high. You need a broker who knows how to purchase these stocks and dicker for a good price.
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