12/10/07

My Newbie Investor Mistakes

I started investing about two years ago. Since then I've made several blunders, that I'm sure many others make too. Here are a couple:


  1. I bought a stock because someone else recommended it (twice).
  2. I let my returns be crushed by commissions.

1. Never listen to the guys in the investment magazines, newsletters, and on the TV. Maybe they have great track records and their bad picks are just a fluke. They recommend so many stocks, however, that their picks are pretty much like an index, and over the long run indexes (large collection of stocks) tend to go up. Individual investors don't have enough money to invest in every single recommendation, and it might be that 20th or 30th stock that you had no more money to buy that would put your portfolio in positive territory.

If Warren Buffett had a stock recommendation show or column, would it last? I doubt it. Weeks would go by without a single stock pick. Stock pumpers on CNBC like Jim Cramer, however, have to find a new bunch of stocks five days a week. They make a living not on investment advice, but on entertainment. Don't listen to them.

2. Try to keep your brokerage commissions under 2%. Don't buy $100 worth of stock when the broker charges you $10 to buy and sell. In such a scenario, your stock has to go up 20% in price just so you break even!

What silly investing mistakes have you made? Feel free to post a comment.