10 Timely
Investment Resolutions For 2002
In the past year, the worst bear market in a generation introduced the public to the stock market's complexities. Jordan Kimmel, a frequent guest on many major financial shows including CNBC, Fox News, ABC News, Bloomberg and CNN attempts to steer investors clear of common mistakes that create losing portfolios and show them where to go from here. "In the depths of a bear market, it's a good time to invest in great companies. The market is not to be feared, but understood," Kimmel says.
The Worst Decisions Investors
Make
And How To avoid Them In The Future
1.
Lacking an investment plan a/k/a "Don't
take a trip without packing the map." A pre-planned
asset allocation generates positive results and eliminates emotional
panic selling.
2. Buying cheap
stocks a/k/a "Road crews erect "Dead
End" signs for a reason." Most stocks with low
share prices also arrive at the bottom for a reason. There must
be institutional interest to influence price, and many won't
even glance at stocks below $8 or $10
3. Purchasing story
stocks a/k/a "A good fable lulls a child to
sleep." Don't get taken by compelling "story"
stocks. The plots include a cure for cancer, a big oil strike
or a revolutionary invention. Such promising stories rarely prove
true. If the "story" materializes, the company will
still be a buy.
4. Selling your
winners a/k/a "You gotta know when to hold
`em." Don't sell your winners. These companies combine
outstanding management, product and cash flow, creating steady
growth for years. Holding three companies for the long run will
compensate for other investing mistakes. In fact, one or two
big winners can create real wealth.
5. Holding onto
a peaked stock a/k/a "Trees don't reach to
the heavens, and companies don't continue growth beyond reason."
Top companies peak for reasons such as attrition of top management
or competition. Systematic pruning will help you avoid a rotting,
unhealthy investment.
6. Under diversification
a/k/a `Ideas are good, but a mind full of them
is better." Resist the urge to rely on a few stocks
that you know. Lack of portfolio diversification leads to erratic
and volatile returns, and owning several companies in the same
industry also isn't diversification. The best investment results
happen by investing in leading companies across various industries.
7. Over diversification
a/k/a "A portfolio stretched like an old T-shirt
won't help an investor benefit from their insight." You
don't create diversification by spreading yourself too thin.
Although a mind full of ideas is good, ideas acted upon a whim
waste good thoughts.
8. Over trading
a/k/a/ "Replanting a garden every week won't produce high-quality
tomatoes." Don't follow market "noise" and
bounce from sector to sector or theme to theme. This prevents
investors from enjoying the rewards of a long-term winner. Give
stocks enough time to mature and compound.
10. Too many options a/k/a "In life there's always options, (but timing makes the difference"). When you buy options, you must be right and use impeccable timing. Options allow an investor to use leverage and control more shares, but there are relatively high spreads involved in trading them. Many times investors lose money on their transaction even after they followed correct assumptions.
Editor's Note: Jordan Kimmel is a managing member of the Magnet Investment Group and developed the MAGNET® stock selection strategy. He is also the author of "Magnet Investing, build a portfolio and pick winning stocks using your home computer". Visit the web site at www.magnetinvesting.com.
