Finance Articles

Ten Common Investment Errors: Stocks, Bonds, & Management

Investment mistakes happen for a multitude of reasons, including the fact that decisions are made under conditions of uncertainty that are irresponsibly downplayed by market gurus and institutional spokespersons. Losing money on an investment may not be the result of a mistake, and not all mistakes result in monetary losses. But errors occur when judgment is unduly influenced by emotions, when the basic principles of investing are misunderstood, and when misconceptions exist about how securities react to varying economic, political, and hysterical circumstances. Avoid these ten common errors to improve your performance:

1. Investment decisions should be made within a clearly defined Investment Plan. Investing is a goal-orientated activity that should include considerations of time, risk-tolerance, and future income... think about where you are going before you start moving in what may be the wrong direction. A well thought out plan will not need frequent adjustments. A well-managed plan will not be susceptible to the addition of trendy, speculations.

2. The distinction between Asset Allocation and Diversification is often clouded. Asset Allocation is the planned division of the portfolio between Equity and Income securities. Diversification is a risk minimization strategy used to assure that the size of individual portfolio positions does not become excessive in terms of various measurements. Neither are "hedges" against anything or Market Timing devices. Neither can be done with Mutual Funds or within a single Mutual Fund. Both are handled most easily using Cost Basis analysis as defined in the Working Capital Model.

3. Investors become bored with their Plan too quickly, change direction too frequently, and make drastic rather than gradual adjustments. Although investing is always referred to as "long term", it is rarely dealt with as such by investors who would be hard pressed to explain simple peak-to-peak analysis. Short-term Market Value movements are routinely compared with various un-portfolio related indices and averages to evaluate performance. There is no index that compares with your portfolio, and calendar divisions have no relationship whatever to market or interest rate cycles.

4. Investors tend to fall in love with securities that rise in price and forget to take profits, particularly when the company was once their employer. It's alarming how often accounting and other professionals refuse to fix these single-issue portfolios. Aside from the love issue, this becomes an unwilling-to-pay-the-taxes problem that often brings the unrealized gain to the Schedule D as a realized loss. Diversification rules, like Mother Nature, must not be messed with.

5. Investors often overdose on information, causing a constant state of "analysis paralysis". Such investors are likely to be confused and tend to become hindsightful and indecisive. Neither portends well for the portfolio. Compounding this issue is the inability to distinguish between research and sales materials... quite often the same document. A somewhat narrow focus on information that supports a logical and well-documented investment strategy will be more productive in the long run. But do avoid future predictors.

6. Investors are constantly in search of a short cut or gimmick that will provide instant success with minimum effort. Consequently, they initiate a feeding frenzy for every new, product and service that the Institutions produce. Their portfolios become a hodgepodge of Mutual Funds, iShares, Index Funds, Partnerships, Penny Stocks, Hedge Funds, Funds of Funds, Commodities, Options, etc. This obsession with Product underlines how Wall Street has made it impossible for financial professionals to survive without them. Remember: Consumers buy products; Investors select securities.

7. Investors just don't understand the nature of Interest Rate Sensitive Securities and can't deal appropriately with changes in Market Value... in either direction. Operationally, the income portion of a portfolio must be looked at separately from the growth portion. A simple assessment of bottom line Market Value for structural and/or directional decision-making is one of the most far-reaching errors that investors make. Fixed Income must not connote Fixed Value and most investors rarely experience the full benefit of this portion of their portfolio.

8. Many investors either ignore or discount the cyclical nature of the investment markets and wind up buying the most popular securities/sectors/funds at their highest ever prices. Illogically, they interpret a current trend in such areas as a new dynamic and tend to overdo their involvement. At the same time, they quickly abandon whatever their previous hot spot happened to be, not realizing that they are creating a Buy High, Sell Low cycle all their own.

9. Many investment errors will involve some form of unrealistic time horizon, or Apples to Oranges form of performance comparison. Somehow, somewhere, the get rich slowly path to investment success has become overgrown and abandoned. Successful portfolio development is rarely a straight up arrow and comparisons with dissimilar products, commodities, or strategies simply produce detours that speed progress away from original portfolio goals.

10. The "cheaper is better" mentality weakens decision making capabilities and leads investors to dangerous assumptions and short cuts that only appear to be effective. Do discount brokers seek "best execution"? Can new issue preferred stocks be purchased without cost? Is a no load fund a freebie? Is a WRAP Account individually managed? When cheap is an investor's primary concern, what he gets will generally be worth the price.

Compounding the problems that investors have managing their investment portfolios is the sideshowesque sensationalism that the media brings to the process. Investing has become a competitive event for service providers and investors alike. This development alone will lead many of you to the self-destructive decision making errors that are described above. Investing is a personal project where individual/family goals and objectives must dictate portfolio structure, management strategy, and performance evaluation techniques. Is it difficult to manage a portfolio in an environment that encourages instant gratification, supports all forms of "uncaveated" speculation, and that rewards short term and shortsighted reports, reactions, and achievements?

Yup, it sure is.

Steve Selengut http://www.sancoservices.com http://www.valuestockbuylistprogram.com Professional Portfolio Management since 1979 Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

Other Article Sites

findabook.com  moneycd.info  a-mortgage.info   about-lemon-laws.info  aboutstudentloans.info
all-about-publishing.info  auctions-articles.info  bestcollege-university.com  bestispconnection.com
biblefolder.com  blogger-website.com  books-used.info  brokers-guide.info  buywindows.info  cable-dsl.info
career-miner.com  carpel-tunnel.info  cashinaflash.info  cashloanreviews.info  casinobell.com  chat-house.info
clearmycredit.info  collegeloantips.info  crones.info  depression-articles.info   dirnic.net  dishguides.info
divers-below.com  expodog.info   financewizz.com  fire-insurance.info  getgood.info  handleit.net   it-idea.info
health-supplies.info  hosting-right.com  insidealert.com  insurance-facts.info  jobs-employment.info
justgood.info  lookgold.net   lowcost-travel.info  money-source.info  myhostzone.info  numisblog.com
peoplesearchfinder.info  pr-articles.info  realeas.com   refinancing-guides.info  spyware-remove.info
telelot.info  the-law.info   toppaid.info  travel-deals.info  travelcorrect.com  wedding-guide-site.com
your-blog.info  your-credit.info

Debt Consolidation Mortgage - Will it be Your Friend or Foe?
Only a few years ago, the prospect of a debt consolidation mortgage was often hailed as the way forward. And it?s clear to see why. Homeowners were getting in to increasing unsecured debt ? in 2007, all debt in the UK (around ?135tr) exceeded GDP for the first time (around ?133tr) ? while interest rates were temptingly low. In October 2003 for example, the base rate stood at just 3.5 per cent. As a result, many homeowners were persuaded to borrow more of this cheap money against their homes ? which of course were rocketing in value ? and pay off more expensive unsecured debt like credit cards. This became known as a debt consolidation mortgage.

Finance For Life, Premium Finance Industry Leader, Reports Record Growth
"Service, great commission structure and a willingness to fight for the difficult cases, keeps our agents coming back for more. When they see how we handle their large cases they also send us great referrals," comments Mr. Gershon Yarmush, Vice President of Operations for Finance For Life. "Our clients also appreciate the "one stop shop" convenience we offer. They know that we have the volume to command the attention of the industries strongest and carrier approved lenders."

John Sauro, President of North Atlantic Mortgage Corp. Appears on CNBC's 'The Closing Bell' with Maria Bartiromo August 6th, 2007 at 4:15 p.m.
John Sauro, President of North Atlantic Mortgage Corp. will appear on CNBC's "The Closing Bell" with Maria Bartiromo on August 6th, 2007 at 4:15 p.m. Mr. Sauro discussed regulation in the subprime market.

Stock Investment Company ? The Ins And Outs
These days, it is not at all rare for one to come across such a stock investment company that offers services with big promises Stock investment is a serious proposition and stock market positions are very difficult to understand

Reject Rejections To Your Application For Home Mortgage Refinance
Who doesn't dislike rejection? We all live in fear of rejection - be it from parents, teachers, or friends. However, rejection becomes particularly painful and burdensome when it's issued by a loan officer. So, give your application for home mortgage refinance the best chance to be accepted!

Cord Blood Banking
Cord blood banking is a kind of insurance for parents who want to protect their child from possible future illnesses by storing the child's cord blood in a cord blood bank. The embryonic stem cells in the cord blood have the power to differentiate.

San Jose Pool Construction Company Teams With Senior Mortgage Banker
Swan Pools of San Jose, part of a leading swimming pool company based throughout California, is partnering with Central Financial to provide loans for swimming pools.

Calculating Your Early Repayment Options with a Mortgage Calculator
If you own your own home or are planning to buy a home, you should become very familiar with a great little tool called a mortgage calculator. A mortgage calculator is an online tool that tells you a lot of information about your mortgage. You can use a calculator to figure interest payments, house payments and much more. If you use the amortization option on a mortgage calculator, you can view each and every mortgage payment due. You can even see what affect making extra payments will have on your mortgage.

Survey Shows Outsource Partners International ``Has the Happiest Customers' in Finance & Accounting Outsourcing
Outsource Partners International, Inc. (OPI), a leading provider of finance, accounting & tax business process outsourcing (BPO) and related services, today announced that it has ranked No. 1 in Customer Service and No. 2 Overall among finance and accounting outsourcing providers. This marks the fourth consecutive year that OPI has been included in FAO Today magazine's annual listing of the top providers of FAO.

Author Challenges Buy-and-Hold Investment Strategy for 401(k)s and IRAs in "The Wall Street Traffic Light"
For investors desiring high returns with reduced risk in their 401(k) and IRA portfolios, a new book on personal investing titled "The Wall Street Traffic Light" describes a powerful and simple investment strategy.

Mortgage Leads, Making the Most of Them
If you are a loan officer or mortgage broker and you are currently investing in mortgage leads, or you have given thought to investing in mortgage leads, make sure you are making the most of them.

Advantages and Disadvantages Of A Reverse Mortgage
Betty and John, are in their mid-seventies and are currently weighing the advantages and disadvantages of a reverse mortgage as a way of freeing up some cash. The couple purchased their home 45 years ago for about $14,000 since then home values have skyrocketed and recent single family homes in their neighborhood have been selling for a minimum of $160,000.

Choosing A Mortgage ? It?s Not All Fixed
If you are a homeowner looking to limit the effects of rising mortgage rates you should make sure you consider discount-rates as well as fixed-rates. Whilst fixed-rate mortgages give people certainty of payment, they may not have the cheapest cost over the life of the mortgage. Particular care should be taken when there is a prospect that interest rates may start to come down- in these circumstances taking out a three or five year fixed rate mortgage may be throwing money away.

New Help for Homeowners: New Website Shows Homeowners How to Freeze or Lower Their Mortgage Payments, Turn The Tables on Mortgage Lenders
The Bush Paulson mortgage freeze offers relief to only a small number of homeowners. A new website, Mortgage Relief Formula, shows all homeowners little known techniques to get lower payments without refinancing, or sell their house even when they owe more than their house is worth -- and restore their credit.