Stock Investment Mistakes to Avoid

Share investing is really a personal venture taking into account yours and your family goals and objectives and these are what should really influence your investment portfolio.

7 Investment Mistakes to Avoid - By Lyn Bell

Investment mistakes often happen when decisions are influenced by emotion and when basic principles of investing are misunderstood. Confusion also exists about how investments react to economic and political influences. In saying that, losing money on your investments may not be the result of a mistake, and not all mistakes will result in a financial loss.

Help improve your investment performance by avoiding these seven common errors:

1. Investing without the end goal in mind. Keep your goals in mind when considering your investment options so that you can move in the right direction. Your investment should include time frame and your personal tolerance to risk. Planning for your goals should mean that you do not need to make frequent adjustments to your portfolio.

2. Not allowing for the emotions that market cycles will cause. Being human we are all affected by optimism and pessimism which is what affects market cycles – the ups and downs of the market. . Overdoing your involvement in a current trend and then quickly abandoning it creates a buy high/sell low cycle of your own. Remember why you invested in the first place. Has this goal changed? Invest for the medium and long term and forget about cycles. “Buy in gloom and sell in boom” or like Warren Buffett, buy in gloom and hold.

3. Not being diversified. Allocate your funds to different asset classes such as property, bonds and shares but within those asset classes make sure you are diversified too and not relying on one asset to perform. Spread the risk.

4. Becoming bored with your plan and changing direction too frequently. Many investors tend to look at their investments with a short term view even though they have invested for medium and long term. Remember that there is no index that compares with your own personal portfolio.

5. Investing in the latest fad or speculative investment. This can result in a hodgepodge of investments and mean that you are investing because it’s the latest “sure” thing and the easy way to make a quick dollar. History is littered with examples such as Tulip Mania (1630), The Mississippi Scheme (1719), and The Tech Wreck (2000).

6. Having an unrealistic time horizon and comparing “apples with oranges”. Comparing your investments with dissimilar products will only cause you to take a detour from your original portfolio goals.

7. Taking too much notice of the media. It is the job of the media to report the sensational and the negative, after all it sells more papers.

Investing is a personal venture taking into account yours and your family goals and objectives and these are what should influence your investment portfolio.

Stock Market Investing Tips

Since stock investment can be risky like any other investments; one should evaluate the risks associated before putting your hard earned money.

Most investors lost money in the stock market because of lack of information to wrong investment decision/strategy and they are usually over-confidence about the up swings in the market without realizing the risks involved and uncertainties ahead.

Below are some common tips hopefully may minimize your investment risks and get you the right tracks of stock investments.

1. Know your investment objectives in terms of short and long term goals. What kind of investors are you?

2. Invest within your mean, know where you can stand in terms of needs when market is turning against you. Be certain about your own risk appetite.

3. Make sure you have time to follow up with your share investment. Be well-informed.

4. Never put all eggs in one basket, diversify but not over-diversified your investment.

5. Read related market investment information from reliable sources.

6. Never buy or sell shares based on hot rumors or under pressure, this usually turn out to be a bad decision and get your fingers 'burned'. Never, never feel pressurized at any time by circumstances. Be cool!

7. Try to minimize your risks, as far and fast as possible. Don't take risk what you cannot afford to take.

8. Follow some guidelines, like the 5% rule, i.e. never risk more that 5% of your investment you cannot stomach to lose.

9. Always use cut or stop loss orders to protect your capital investment whenever possible.
Better lose minimum than a lot. Instruct your broker on cut or stop loss order when you are on long holiday vacation.

10. Lock-in your profit as soon as the deal gets profitable, this is especially when the shares went up significantly in a short period, like +30% within one week. Don't let greed overrule you. Likewise, don't sell in panic because of fear. Don't let fear overrule you also!

11. When you are unsure where the market is heading, it is better to stay put until situation get clearer.

12. Avoid speculative stocks, it's meant for the speculators.

13. Stay out with high P/E stocks and consistently 'in-the-black' stocks.

14. Always be well informed through reliable updated financial sources.

15. Watch updated financial market news to stay ahead with the trends of financial market.

16. When come to stock picks or recommended tips, know the fact and don't listen to market rumors. Any tips that come to you may be already too late even it's true.

17. Stock investment is not short-term like gambling, invest stocks in long-term, as there are likely greater chances of getting better returns (ROI) in long term if you focus on strong fundamental stocks like blue-chips.

18. Do your research. A well-researched and well-done valuation is timeless.

19. Change your broker if he/she consistently seem to be not able to provide you reliable information or good advice to help you make 'intelligent' decision.

20. Always do your home work before putting your hard-earned money into the investment world.

21. Learned from past mistakes and avoid repetition of same mistakes again.

22. When internet traffic get heavy or slow down heavily when doing internet trading, call your broker to place your bet as market data may change significantly.

23. Always set your price limits on fast-moving stocks when trading in share market .

24. Don't assumed that your order has been placed correctly. Double check and make sure you did it correctly. Correct it if need to.

25. Understand your margin agreement if you trade on margin, beware that your broker can sell your equities without giving a margin call.

26. Bernard Baruch once said that “If you want to make money, big money, buy that which is being thrown away.”

27. Be a contrarian. Sell or reduce your shares holding when market is over-optimistic about that stocks. Likewise, Buy or increase your shares holding when market is over-pessimistic about the stocks.

28. Beware of scams and internet stock fraud. Don't believe in get-rich-quick scheme.

29. Remember 'paper' gain is not a gain until it is in your wallet or pocket.

All the best!

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Why we must still tread very carefully, despite the recent market rally

BILL JAMIESON

ONWARDS and upwards goes the great stock market rally. Despite oil prices climbing to $83 a barrel, a slowing housing market and a downgrading of the government's growth forecast for next year, the FTSE 100 climbed a further 134.9 points or 2 per cent last week to close at 6,730.7.

That's just a whisker from its 2007 high and prompts the question of whether the great global credit crunch actually happened or was just a bad dream.

So why has the marked rebounded so strongly? Have we been too gloomy about the impact of the credit crisis on the wider economy? And what should investors do now?

There will be many reminders this week of the 20th anniversary of the 1987 stock market crash. On Monday 19 October 20 years ago, the Dow Jones Industrial Average plummeted 23 per cent. Markets round the world followed. By the end of October, the UK market had fallen by 26 per cent and Hong Kong by 46 per cent.

But as surprising as the crash was the recovery. Unlike after 1929 (the precedent most widely cited at the time) markets rallied almost immediately. Wall Street posted a record one-day gain of 102.27 points the next day and 186.64 points on 22 October. It took just two years for the Dow to recover completely - by September of 1989 the market had regained all of the value it had lost in October 1987.

In Britain, too, the market recovered as interest rate cuts drove the Nigel Lawson boom to a final climax before a spectacular bust in 1990-92.

This time around the FTSE 100 tumbled 857 points or 12.7 per cent between its June 2007 high of 6,716 to its 16 August low of 5,858.9 It has now clawed almost all of this back.

Yet evidence has mounted of slowing mortgage lending, a gathering slowdown in the rate of house price growth and signs of slower activity across the economy overall. Last Tuesday Alistair Darling, the Chancellor, cut the official 2008 forecast for the UK economy from growth of between 2.5 and 3.0 per cent to 2.0-2.5 per cent. Yet the market seems to have shrugged this off.

This has much to do with the strength of the mining sector, as the giant natural resource companies in the FTSE 100 such as Anglo American and Rio Tinto have forged ahead on the continuing commodity price boom. Housebuilders, property companies, retailers and financials have all been left behind in the rally.

Big drivers in the FTSE 100 over the past week were oil giant BP, which gained 8 per cent to 619p, and crisis-hit Northern Rock, which soared 73 per cent to 273.5p on talk of interest from potential bidders including Sir Richard Branson's Virgin Money. The "downers" were Royal Bank of Scotland, 4 per cent weaker at 546p on worries that it had overbid for ABN Amro, and Barclays, which slipped 2 per cent to 648p.

It is by no means the first time the stock market has gone one way and the economy another. One of the worst years for the British economy was 1975, when inflation hit 25 per cent. But the FT30 Index doubled that year as it recovered from a historic sell-off that left shares in some of our biggest companies as cheap as chips.

Today's market recovery has been driven in large part by developments in the US where the Federal Reserve moved promptly to cut interest rates by half a percentage point. Recent economic data has been less bad than feared. Non-farm payroll numbers came in higher than expected while last Friday brought a fairly solid retail sales report. This convinced investors that the consumer sector might remain a bulwark against a more pronounced economic slowdown driven by the housing slump.

These developments, combined with a good flow of corporate earnings news, has helped the Dow to hit new highs. And over in continental Europe there are signs that the German economy is bucking the more dire prophecies of slowdown. All this is working to confirm many investors in their belief that global markets are locked into a major bull run that is likely to last for another three years. Slowdowns, they argue, will be cushioned by the continuing strength of the Chinese and Indian economies. So you don't want to be out of equities at this time.

However, others are more sceptical. They fear that they are being drawn in to a sucker's rally and specifically a "1999 trap". The world economy was performing well, stock markets were driven ever higher by the dot-com and information technology boom, and everything was set fair as the millennium approached. But then the dot-com bubble burst, a three-year bear market ensued and even now the FTSE 100 has still to reach the all-time high it hit at the tail-end of 1999.

It would be surprising if there was not some profit-taking after the recovery of the past six weeks. Much would then depend on the outlook for interest rates and the consumer sector.

For the moment there are still sectors of this market to be avoided until conditions are more clear. Investors need to pick carefully those companies with solid earnings growth prospects and a commitment to dividend payouts.

Source: Scotsman.com

13 Questions That Will Boost Your Investment Portfolio

When times are good in the stock market, how do you know if you are maximizing your investment portfolio value?

Below I will ask you 13 different questions about how you and your portfolio are laid out. The whole purpose is to challenge your thinking and expose you to possibly different investment strategies.

1. How much cash on hand do you have? When the market is on a tear, having too much cash on hand (or cash available to be traded) can limit your investment returns. The best way to look at this is in a percentage manor. If the market is in a downtrend, you may want to have 50% or less of your portfolio invested in the stock market, leaving you with 50% or more in cash. Some investors will go 100% cash if the markets turn sour, and some investors like being 99.9% invested when the market is good. So take a look at your portfolio and figure out your % cash is and ask yourself, “should I be more invested?”

2. Are you over invested in mutual funds? A mutual fund load is a big scam, and you shouldn’t be paying one. Also, sometimes mutual fund fees can get a bit too high to really give true value. If you have have too many mutual funds in your portfolio you may be limiting your success potential. Perhaps you think stocks are too risky or don’t know enough to get involved which is fine. Exchange Traded Funds for example offer a easy way to play different markets. A good place to find great mutual funds is my list of the 25 top mutual funds.

3. Do you have exposure internationally? This is a more opinionated question, because every investor is different. When the US stock market is hot does it really matter if you have international exposure? Maybe or maybe not, but just looking at your portfolio and seeing where you are vested may help you find an easy tweak or two to really give yourself an upper hand.

4. Do you utilize ETFs? Now more than ever etfs are hotter than hot. Off the top of my head you have the gold etf, south korea etf, which have both been great successes. Even owning the QQQQ or SPY which tracks the Nasdaq 100 and S & P 500 (respectively) can be nice holds long term. Brazil has been hot, China has been hotter then hot, heck just read my list of the Top 25 ETFs that every investor should know about and see for yourself. Unlike mutual funds, ETFs are expense free and can make a great addition to any portfolio.

5. Are you over diversified? Perhaps you have seen Jim Cramer’s “Am I Diversified?” game on CNBC’s Mad Money. Unlike Cramer I think you can be over diversified, and in fact owning too many stocks at once can eat would be profits away easily. William O’Neil the founder of CAN SLIM trading believes you should put more eggs in fewer baskets then less eggs in more baskets. Why? Because if your biggest position only makes up 5% of your portfolio and even say doubles unexpectedly, you still aren’t making much headway in your overall portfolio. Minimizing your portfolio diversification works, and it is a matter of managing it with a stop loss and cutting your losses. Do you own 5 stocks or 50 right now? Could you sell some stocks that are not up to par?

6. Are you outperforming the S&P 500 so far in 2007? Comparing to the S & P 500 market index is very simple way to judge your investment success and actually is THE way to do it for institutional investors (mutual funds, hedge funds, etc.). You always want to look at your performance on a percentage basis, not a whole value basis because making $5,000 in a $5 million dollar portfolio (1%) isn’t nearly as great as making $5,000 in a $5,000 portfolio (100%). Go to any free investment site and pull up a chart of the S & P 500. Take today’s close less the closing price of December 31st of last year, then divide by the same December 31st closing price. This will give you the current to date return of that index for the year, which you then simply compare to your own portfolio. If the market is up your portfolio should be too.

7. Is your broker providing you with what you need to succeed? I recently covered 12 ways to compare your online stock broker and suggest reading that and also checking out my list of the best stock brokers to see if you could be in trading under a superior roof. Your broker should supply everything from the tools to the free real time quotes to the flat-fee trades. Is your broker ranked for superior customer support? Now is better a time then ever to consider changing your online broker.

8. Do you know what direction the market is heading? I wrote in the past on analyzing the overall market for dummies, and having even a general grasp of what direction the market is heading can be a great asset. When it comes to maximizing your portfolio value you want to know what direction the market is going because 3 our 4 stocks tend to follow the overall market trends. How you do this is by looking at one of major indices such as the S & P 500 or the NASDAQ Composite. I listed 5 places to get free stock charts, so check out the market and check out your portfolio would ya?

9. Are you cutting losses and letting runners run? A fantastic way to maximize your portfolio value is to get rid of those stocks in the red and replace them with stocks that are heading up. The easiest way to cut your losses is with the use of a stop loss order, which should always be a maximum of 5 - 8% below your purchase price. The smart investor always uses a profit vs loss ratio to support their success. If you let your big runners run and cut your losses short I guarantee you will make money, and lots of it, in your investment portfolio.

10. How much time are you putting into research? Could you be spending even 5 more minutes a day reading through free investment sites that could be providing you with great insight? A easy way to maximize your portfolio value is to kick your stock market education up a notch. Perhaps adopting a productive financial morning routine may be the way to give yourself the edge you need.

11. Are you trading on your own or having someone trade for you? This is very simple and straight forward, if you have someone managing your nest egg for you and they aren’t beating out the S & P 500 then it is time you take control of your own portfolio. There is absolutely no reason why your buddy Joe can’t match or beat out the overall market. Want to know how easy it is to match the overall market performance? Simply buy the QQQQ or the SPY and boom, instant portfolio success. The sad part is that even Joe your fund manager can’t even figure that out.

12. Do you have an investment goal for 2007? I am a big believer and promoter of setting goals which can be seen from my recent interview with ZenHabits. Setting yourself goals for the four quarters of the year and the year itself is a great way to maximize your portfolio worth. Why? Because if you aren’t reaching your goals you are going to be analyzing and working harder to get your portfolio where it should be. This, of course is the whole point of the article

13. Are you happy with your investment strategy? I have covered 7 strategies for online stock trading, and perhaps yours needs a change up. I see a lot of newer traders try to utilize strategies such as day trading and find out very quickly how tough it actually is. I’ve also listed 10 great ways to learn stock trading as a new investor, and the focus is all on expanding your knowledge base in different fashions. Bottom line here is how effective is your investment strategy? If you spent some more time could you actually be doing better right now?

The purpose of these questions are to get you thinking. Being an independent investor myself I always find it difficult to cover all the angles of what I can be doing better. I hope the list provides you with atleast one way to boost your investment portfolio, and as a result become a better investor. What questions would you add onto this list?

Source: stocktradingtogo