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Mutual Fund Versus Stocks
By Hari Wibowo

If you have money to invest, you might contemplate investing in mutual fund. What is mutual fund? Mutual fund is simply a collection of stocks that are bought using money pooled from various individual investors. Historically, average mutual fund returns 2% less annually than a stock market index.

While the return is less than stellar, there are several advantages of investing in mutual fund. They provide diversification, economies of scale and liquidity. So, the question you want to ask yourself is whether you want to have a smaller return for the advantages mentioned previously.

While two percent difference looks small, it is not pocket change. Investors who set aside $ 1 a day, would have $ 562,000 of savings in fifty years if he invests in stock index fund growing at 10.5% per annum. The same investors would collect ‘only’ $ 271,000 if he invests in average mutual fund that grow at 8.5% per annum.

There are also disadvantages investing in mutual funds. There is a problem on how to choose the ‘right’ mutual fund. If average mutual fund returns 8.5% annually, the below-average fund will give you less than that. Just like picking a stock, you would find some stocks that outperform the average and other stocks that do not perform well.

The next question would be if we investors can do better than stock market index fund of 10.5%? A lot of people believe they can. But, the path ahead is full of obstacles. First, you need to get educated about stocks in general and how to calculate the fair value of a common stock. Next, you need to open a brokerage account to execute your buy and sell order. Finally, you need to keep abreast of new developments. Business comes and goes. Industry rises and falls. Examples of industry that used to dominate are: typewriters, cassette players, sewing machine and traditional camera. If you don’t read often, you may predict that certain stock has a high fair value even when the entire industry is collapsing.

It all comes down to individual investors. Would they want to learn more and get a few more percentage return each year? Or would they let someone else manage their money? Me, I prefer to learn how to manage my own investment. Sure, it is time consuming. But giving a little bit of your time may give you the potential to double your retirement money in fifty years. The potential is rewarding and someday you might even manage someone else’s money.

Investing Idea Is Free! Visit http://www.noviceinvesting.com and read on our commentary section

Article Source: http://EzineArticles.com/?expert=Hari_Wibowo

Placing Stock Sell Stops
By Chris Perruna

If you follow my articles or my stock analysis, you already know that I am not a supporter of physical sell stops due to the fact that market makers can manipulate these stops during the day. A market maker can drive the price down artificially during trading hours setting off physical stop after physical stop only to allow the stock to rebound and close for a slight loss or a possible gain. The market makers that drive down the price are the same individuals that grab shares at the new intraday price lows, giving themselves an instant profit at the expense of investors like you and me. I fell victim to this trap several times in 2002 and 2003 and became very angry at my stock system until I understood what was really happening. I had established positions in stocks and set a physical sell stop about 7-10% lower to protect from a larger loss. I would come home or take a break only to see that I was automatically sold out of the stock due to a brief drop that only lasted a few minutes to a few hours. The stock would drop anywhere from 15% to 25% intraday only to rebound for a small 1% or 2% loss.

In one case, my stock that had been sold out intraday actually managed to close the day with a slight gain, really making my emotions rage. This same stock went on to double over the next nine months but I never had the courage to get back in. I took this anger and quickly converted it into a research effort that would help me understand what had happened and why it had happened and most importantly: What can I do to prevent it from happening to me again?

I started to study the three instances where this action happened to me and I researched other stocks that I did not own but showed the same type of false intraday movements. After reading about market makers and my individual research, I came up with a solution to the problem. If I narrowed down my portfolio to only high quality stocks, both fundamentally and technically, I knew that my risk was low enough to withstand an intraday movement without placing a physical stop. Barring a catastrophic event, I felt comfortable enough to set a mental stop in my head and write it down on a piece of paper so I could review the stop after the day’s close. If a stock I own drops below my mental stop, I will either sell “at the market” first thing the next morning or I will wait for the first hour of trading to end and then make my decision to sell. If the mental stop has been passed by more than 5%, I sell immediately the next day. If the metal stop is only sliced slightly (less than 2%-3%) I will hold until mid morning or early afternoon to sell my shares.

Typically, when a stock violates a mental stop that I set; it will drop even further during the first hour of trading but will then rebound as the day moves on, allowing me to take a lesser loss. This is risky but it has been a plan that I have been following for two years with success.

The other more important advantage that mental stops give over physical stops is the prevention of getting sold out intraday during a false breakdown. Since Tower Group (TWGP) is currently on the MSW weekly screens, I will use it as a perfect real time example. Below are the open, high, low and closing prices for the past two days in Tower (the stock has not reached an intraday low below $16 in the past several weeks).

Monday: 19.64 open, 19.81 high, 18.53 low, 18.87 close
Tuesday: 18.86 open, 19.02 high, 15.37 low, 18.49 close

As you can see, the stock went as low as $15.37 on Tuesday only to close back up at $18.49 (a gain of 20% from the intraday low) but what you cannot see without an intraday chart is the fact that this entire move took only 90 minutes of the trading day. Within minutes of the opening bell, the stock dropped 20% but rebounded with strides over the next 90 minutes bringing the price back to the $19 level. From that point forward, the stock gradually fell and lost about 2% for the day but it wasn’t anywhere near the 20% drop from the first hour of trading. If you had a physical stop near $18, a short term support level, you would have been sold out even lower during the intraday drop and would have a large loss in your portfolio. If you had a mental stop, you would not have been sold out and could have made a rational decision on Tuesday night to see if you would like to sell the next day because your mental stop had been violated. The stock managed to close above $18 per share but a major red flag was issued and in most cases, I would sell the next day to be safe. I would then wait after selling the stock to see what direction it was going to take and if the up-trend would continue. If the up-trend continued, I would jump back in at the first solid opportunity.

Some investors think I am raising my risk without using physical stops but I know I am helping my odds by assessing the situation at the end of the day by placing mental stops. I only place physical stops on a position that is showing at least a 20% gain and I will give it room to breathe. If the stock shows a 50% or 100% gain, I will place a physical trailing stop to protect my gains from melting away but I will not place a physical stop on a stock that I just purchased. Too many times during the initial stages of a breakout, market makers will wipe out all of the physical stops and restart the movement without the heavy domino load below. These market makers know about CANSLIM and other stop loss systems and they can see where these stops are placed; so they wipe them out, allowing themselves to get in at a lower price and they release the possible sell-off due to hundreds, if not thousands of stops that have been set due to a specific system strategy such as CANSLIM. Unless you are investing in high quality stocks with strong fundamental and technical ratings, do not employ this strategy or you can lose your entire trading stake. The strategy is a suggestion based on the results it has given me over the past several years after the bad personal experiences that I had with market makers in the past. They may burn other investors, but they no longer burn me – only I can burn me!

To view the example chart, please visit this link by cutting and pasting the address: www.marketstockwatch.com/Admin/Uploads/110905_TWGP_15minute.jpg

Chris Perruna - http://www.marketstockwatch.com

Chris is the founder and president of MarketStockWatch.com, an internet community that teaches you how to invest your money with solid rules. We offer an extended no obligation monthly trial period starting immediately with two free weeks. We don’t stop at just showing you our daily and weekly screens, we teach you how to make you own screens through education. Through our philosophy, you will be able to create your own methods and styles to become successful.

Article Source: http://EzineArticles.com/?expert=Chris_Perruna

Investing In Stock Research
By Leon Chaddock

Stock research is the investment of time in learning more about the stock that is in question. You realize that you need to know basics about a stock but how can you make a decision based on the stock if you have not done your research on it? You can not. Because stock research is so vitally important to predicting whether or not they will do well, it may make sense to you to invest in someone else doing the research you need. If you are not the right person for the job, you can always find someone else out there to do it.

But, What If I Research Stock?

What things do you need to know about a stock before you invest in it? Of course, you want to know if it is going to sore soon, but beyond that, you want to know the who, the what, the where and the why to really get an inside look at what you should invest in and what you shouldn’t.

Here are some guidelines to stock research:

• What does the company do? It is important to know what kind of company it is. You will also want to research enough to find out if the company is financially sound as well. These things will give you a fundamental understanding of the company itself. You will also want to know if the company is growing. You can see the benefits like this.

• Consider what everyone else is doing. How much have others paid to invest in this stock? This will give you a good viewpoint from where you are standing now.

• On the flip side, what do you think that investors will likely pay for it down the line?

• Then, your next step in stock research is to figure out how the stock compares to other companies in the same category/industry.

• Lastly, consider what catalysts will help to change the company as well as the perceptions of the stock. What could affect the stock?

Stock research that is thorough, whether done by you or by a professional should look at all aspects of the stock to determine its potential.

for more information please see http://www.stock-research-info.co.uk

Article Source: http://EzineArticles.com/?expert=Leon_Chaddock

Whiplash Investing
By Al Thomas

Have you ever been struck from behind while you were in your car? It usually happens at a stoplight or stopsign. Everything is nice and peaceful and BANG you get a terrible whack. Totally unexpected. Some damage to the car and maybe to you.

It might be a day or so later as headaches
start, dizzy spells and vomiting. Yuk! Best
thing is to be off to your chiropractor to have
bones reset.

This is somewhat like the stock market and
your portfolio. You are going along comfortably
relaxed and suddenly the market hits you from
behind. Totally unexpected. There is damage to
your portfolio and maybe to your peace of mind.
Could be headaches and vomiting depending on how
serious is the crash.

It’s off to your broker or financial planner
to get things fixed. After you get there you are
shocked to find out he has no idea how to get
your money back. Yuk! He is supposed to be an
expert and this should not have happened in the
first place. You are about find out that brokers
and financial planners have been taught their
trade by the big Wall Street brokerage houses.
Their goal is not to make you rich but to get
rich off you. Can this be true? You betcha. You
will learn that advice from a broker is a eulogy
for your money.

It is not that your broker or financial planner
is dishonest. It is that he doesn’t know that he
doesn’t know. The methodology of Wall Street is
to get your money and keep it. Buy and never
sell. Brokers are not taught that cash is a
position. Think back. How much more money would
you have today if you had been in cash from 2000
to 2003? There are times when Buy And Hold is a
good idea, but there are also times when you
should be in a money market.

Your chiropractor will make an adjustment
to your neck and back and you will get off the
table feeling better. Your broker will suggest
adjusting your portfolio by selling certain
equities and buying others. The chiropractor may
ask that you have additional adjustments.
Unfortunately, unless you have a very large
account brokers forget their clients until you
are faced with another headache and call him to
make further “adjustment”. It doesn’t help
unless he is aware of the general direction of
the market – up or down. Down he doesn’t
understand and has not been schooled how to
protect your money.

The standard Wall Street medications of Buy
and Hold, Diversification, Do Research, Dollar Cost
Average and You Can’t Afford to be Out of the
Market are a few of the poison pills prescribed
to investors every day. There are more standard
WS tablets and they will all make your portfolio
smaller over a period of time.

If you have either of these types of whiplash
you will need to find someone who knows the cure.

Al Thomas’ book, “If It Doesn’t Go Up, Don’t Buy
It!” has helped thousands of people make money
and keep their profits with his simple 2-step
method. Read the first chapter at
http://www.mutualfundmagic.com
and discover why he’s the man that Wall Street
does not want you to know.

Copyright 2005

Article Source: http://EzineArticles.com/?expert=Al_Thomas

Does Your Stock Investing Guru Have a Mail Order Ph.D.?
By Dr. Scott Brown, Ph.D.

Do you take a person’s credentials for granted? Most people do! For instance they don’t think twice when they hear about Marxism. They take the concept seriously because they know that it was authored by Dr. Karl Marx. What they don’t know is that “Dr.” Marx was a womanizer who was too lazy to work his way through the higher educational institutions to earn his Ph.D. the honest way. “Dr.” Marx received his “doctorate” by mail order! Unfortunately, for modern economics he had a gift for gab and was able to sell his ungrounded ramblings of economic reform that was nothing more than a confused projection of his inner rage at his own incompetence rather than ability as an economist.

Even back at the turn of the last century there were unscrupulous universities that accept nearly anybody who applies. These bottom rate “universities” became known as diploma mills. Many people don’t know that these diploma mills exist to this very day. Many individuals are seeking a doctorate in business administration because of the high pay levels for business professors. Schools like the University of Sarasota, Nova Southeastern University, and California Coastal University are examples of supposedly higher learning institutions that offer “distance learning doctoral programs” in business administration but have low acceptance standards and high graduation rates.

For this reason these schools are known as “mail order diploma mills” and fail to meet the accreditation requirements of the American Assembly of Collegiate Schools of Business (AACSB). It is impossible to have the daily apprenticeship of full immersion indoctrination that a doctoral candidate in business administration receives from a quality research institution. The University of South Carolina where I received my Ph.D. in finance, for instance, only accepts two candidates every two years. Each candidate receives constant focused daily instruction in the field that is both grueling and necessary for development of quality finance researchers and professors. Non-accredited distance learning doctoral programs are a goldmine for the owners but undermine the quality of higher learning in the United States today.

I warn investors that it is critically important that they carefully review the credentials of the mentor they select to learn how to invest in the stock market. Fraudsters don’t think twice before developing stock investing, commodity or option trading courses to make a little extra money for themselves regardless of whether or not what they teach helps their students.

I actually know of an investment guru who has never traded futures who figured out what people wanted to know about investing online and then simply tailored a course to their needs. This scary choice of an inexperienced mentor is more common than you may know. You must be very cautious because there are a lot of “never been there, never done that, but I will teach you if you pay me big gurus” out there.

You should exercise great caution when you decide to follow somebody’s investment advice. Look for good credentials from well known universities. A good school in finance for instance only accepts one or two doctoral candidates each year or every other year. Contrast this to the school’s medical school that accepts around one hundred and fifty medical students each year. A finance doctorate is the most difficult Ph.D. of all to obtain in the social sciences. A master’s degree from a good finance program in a solid university is also difficult to obtain. Check your mentor’s credentials carefully before you hand over your hard earned dollars to buy their course.

Some people have become outstanding investors without extensive education and may be able to teach you useful information. If they claim superior investing ability then make sure that it is documented and review the documentation carefully. You may even want to check their criminal record for any prior fraudulent activities. One thing I can assure you is that you will succeed if you select the right mentor to teach you how to invest!

Dr. Brown can teach you how to invest through The Delano Max Wealth Institute (http://www.DelanoMax.com) The company website is http://www.BonanzaBase.com and his free stock investment tips ezine is http://www.WalletDoctor.com Dr. Brown holds free teleseminars for Wallet Doctor ezine subscribers. If you’d like more information about this topic, or to schedule an interview with Dr. Brown, please call Shandy Brown at 530-336-6616

Article Source: http://EzineArticles.com/?expert=Dr._Scott_Brown,_Ph.D.

Stock Brokers — Just The Facts
By Ron King

Most of the buying and selling on the stock market is handled by stock brokers on behalf of their clients, who are the investors. Many different types of brokerage services are available.

Full-Service Brokers

“Full-service brokers” offer a variety of ways to help clients meet their investment goals. These brokers can give advice about which stocks to buy and sell, and often have large research departments that analyze market trends and predict stock movements, for their clients.

Such services are not free, of course. Full-service brokers charge the highest commission rates in the industry. Your decision whether to use a full-service broker will depend on your level of self-confidence, your knowledge of the stock market, and the number of trades you make regularly.

Discount Brokers

Investors who wish to save on commission fees generally use discount brokers. Brokers in this category charge much lower commissions, but they don’t offer advice or analysis. Investors who prefer to make their own trading decisions, and those who trade often rely on discount brokers for their transactions.

Online Brokers

Taking the discount concept 1 step further, online brokers are the least expensive way to trade stocks. Both full-service and discount brokers usually offer discounts for orders placed online. Some brokers operate exclusively online, and they offer the best rates of all.

Account Requirements

Whichever type of broker you choose, your first order of business will be to open an account. Minimum balance requirements vary among brokers, but it is usually between $500 and $1000. If you’re shopping for a broker, read the fine print about all the fees involved. You’ll find that some brokers charge an annual maintenance fee while others charge fees whenever your account balance falls below a minimum.

Cash Or Margin?

Brokerage accounts come in 2 basic types. The “cash account” offers no credit; when you buy, you pay the full stock price. With a “margin account,” on the other hand, you can buy stock on margin, meaning the brokerage will carry some of the cost. The amount of margin varies from broker to broker, but the margin must be covered by the value of the client’s portfolio.

Any time a portfolio falls below a specified value, the investor will have to add funds or sell some stock. A greater opportunity exists for realizing gains (and losses) with margin accounts, because they allow investors to buy more stock with less cash. Involving greater risk than cash accounts, as they do, margin accounts are not recommended for inexperienced traders.

Selecting The Right Broker For You

You should carefully consider your needs as an investor before making the choice of a broker. Do you wish to receive advice about which stocks to buy? Are you uncomfortable making trades on the Internet? If so, you will be best served by a full-service broker. If you are comfortable buying on the Internet, and you have the knowledge and confidence to make your own trading decisions, then you will be better off with an online discount broker.

After deciding which type of broker you want, do some comparison-shopping between competitors. Significant cost differences can show up when you factor in all the annual fees and brokerage rates. Estimate how many trades you expect to make in a year, how much cash you can deposit into your account, whether you want to use margin accounts, and which services you need. Armed with this information, you’ll be prepared to compare your actual costs for various brokers, and to make an educated choice.

Visit Stock Trade to learn more. Ron King is a full-time researcher, writer, and web developer. Copyright 2005 Ron King. This article may be reprinted if the resource box is left intact.

Article Source: http://EzineArticles.com/?expert=Ron_King

What if the Common Man Could not Invest in Stocks and Mutual Funds?
By Lance Winslow

What if the average American could not invest in the stock market or buy mutual funds? What if only the wealthy could do this? Well, as more and more regulations are put on the financial investment industry and more and more minority shareholder lawsuits abound, we may see a time when the little guy gets shut out.

In fact many financial planners will not take to anyone who has less than 500,000 dollars to invest. Why? Well they feel it is not worth their time and with all the regulations in the financial planner industry, well, it I really isn’t and it is not worth the risk that they might lose their license as the SEC is quick to launch an investigation over any little complaint whether legitimate or not?

What can the little guy do? Well you can go down to Merrill Lynch and open up a brokerage account where some young stockbroker will read the latest stock picks on a 3 X 5 index card and tell you where your money should go, while they churn the ever-living-crap out of your account?

Why is this happening? Well, the SEC has it in for the little guy, as every 6-8 days they make another rule, causing more paper work and costs to little financial planners and Broker/Dealers forcing them to adjust their business model or quit business.

This means they cannot make money taking on small accounts under 500,000 and therefore, the little guys gets to go to the wire houses to get bent over; so my question to you is how do you like your SEC now? Think on it.

“Lance Winslow” - Online Think Tank forum board. If you have innovative thoughts and unique perspectives, come think with Lance; http://www.WorldThinkTank.net/wttbbs/

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Stocks Or Foreign Exchange - Which One?
By Mike Singh

Many people would like to invest in stocks or Forex but are not really sure of the difference between the two and don’t know which is the right choice for them. There is little doubt that there are many options out there for you. But, it is hard to say which the right choice is until you gather some information about them and then make the right choice.

Stocks? Forex?

Stock trading is similar to owning part of a company or organization. You purchase the stocks so that the company can then use this money to reinvest to increase their profits. Most people know about the stock trading market and have a basic understanding of how it works.

On the other hand, though, not many realize what Forex trading actually is. Forex trading is a type of investing that deals with currency trading. In its basic form, you cash in US dollars for the currency of another country. You cash out when you make a profit or to cut your losses short. The Forex market is a truly global marketplace where billions of dollars are traded everyday. Here, you can make a lot of money and lose a lot of money fairly quickly.

Making The Choice

Forex trading is a relatively new method of investing. It is a good choice for someone who is willing to take greater risk for a greater reward. In stock trading, you can make smaller profits in the short-term and only in the long-term can you make a significant profit.

It is often wise for the beginner to dabble in stocks trading before looking at Forex trading. It is an excellent way to get your feet wet without a whole lot of risk.

Nevertheless, it is important to note that anyone that is a beginner in the field of investments should pay close attention to details here. It is important for both types of investments that due diligence is paid in order to make any money. Study both forms of investments and do some paper trading. This simply means you make decisions to buy or sell but don’t put any ‘real’ money down. The key here is to track results like you would do for a ‘real’ trade. Initially, you will make mistakes so, go easy on yourself. With experience you will start to make profits on a consistent basis. When this happens, start putting some money on your trades.

Good luck with your investment efforts.

Mike Singh is a successful webmaster and publisher of financial websites. He provides stock market help and articles on how to read forex charts .

Article Source: http://EzineArticles.com/?expert=Mike_Singh

Hot Share Tips
By Thomas Murrell

It’s official! Australia is the largest nation of shareholders with direct share ownership more than doubling since 1997 to 40.6 per cent. That figure rises to 54 per cent of all adult Australians when managed funds are taken into account.

We’re also trading more shares. The Australian Stock Exchange reports the average number of trades has nearly trebled in the past year to 79,000 a day.

Large new floats such as Telstra has fueled the growth of private share ownership. For example, almost one million of the two million people who invested in our largest telecommunications company were first time investors. They haven’t been disappointed with their return on capital and many have branched out into other well-known stock such as Coles-Myer, Qantas, AMP, Commonwealth Bank and others.

Smaller and less-well known companies are also floating on the stock exchange in record numbers. In the last half of 1999 more than 104 new companies went public.

Share ownership in Australia cuts across all age groups, socio-economic, ethnic and geographical boundaries. The motivation for most investors is to make money and create wealth.

Newer investors have been in a rising or “bull” market and seen their so-called “paper profits” soar. Internet and technology based companies have also been floated in record numbers with astonishing results. Many “Mum and Dad” investors are instant experts and looking for that next “dot com” company on which to make their fortune.

But what are the keys to successful share investing? Ron Bennetts is Principle Manager WA for stockbrokers J.B. Were and author of “The Australian Stock Market: A Guide for Players, Planners and Procrastinators”.

His advice is simple, “invest some time as well as money, look for quality management in quality companies with earnings growth.”

Bennetts defines these companies as ones that are strong and likely to increase their earnings per share. He believes the technology area is a growth sector and the bubble may burst but there will be growth.

“Look at the companies that have the qualities rather than a marketing plan that has little chance of bearing fruit,” he says.

One of the keys too successful investing is diversification and Bennetts says you don’t need more than 12 stocks to diversify your portfolio. He also believes 15 per should be overseas shares and this is often 25 per cent for more aggressive investors.

On seeking independent advice versus investing yourself, Bennetts says “the cost of buying and selling is often viewed as a false economy” and suggests first time investors seek professional advice.

Ten Tips for First Time Share Investors

1. Set your objectives and work out a budget for how much you want to invest.

2. Avoid speculating. Do some homework about the risks of investing in the stock market and spend time gaining knowledge on how the stock market works.

3. Take a long-term view of your investment.

4. Avoid reacting to short-term pressure and expect some volatility in the market.

5. Identify quality shares in a growth sector. Look for good quality management in industries likely to grow in the future.

6. Diversify your portfolio to spread your risk. This should ideally include about 10 stocks. Less than 10 are not enough diversification and more than 15 is too hard to handle.

7. Compliment your Australian share portfolio with international shares. Exposure overseas can typically be through managed funds.

8. Buy into a managed fund if you only have small amounts of money to invest. A managed fund is an investment where you have a manager that gives you diversification in pooled funds with other investors. To buy direct most advisors believe you need a minimum of $50,000 to do anything meaningful.

9. Monitor your portfolio as closely as possible on the performance of the companies you are investing in.

10. Seek professional advice from a qualified stockbroker or financial planner.

Thomas Murrell MBA CSP is an international business speaker, consultant and award-winning broadcaster. Media Motivators is his regular electronic magazine read by 7,000 professionals in 15 different countries.

You can subscribe by visiting http://www.8mmedia.com. Thomas can be contacted directly at +6189388 6888 and is available to speak to your conference, seminar or event. Visit Tom’s blog at http://www.8mmedia.blogspot.com.

Article Source: http://EzineArticles.com/?expert=Thomas_Murrell

15 Common Investing Pitfalls
By Hari Wibowo

We touched briefly about common investing pitfalls here. Here is a more comprehensive list. Some of it may happen to the more experienced investors as well. This serves as a guide for Novice Investors:

Investing with debt. You should not invest when you still owe a lot of money in your credit card. Credit card interest can run to as high as 20% while in the long run, investing in the market indices can give a 10.1 % return historically.

Not Starting Now. By now, you should have known that compounding works its magic in longer time frame. The sooner you start, the longer time you let compounding do its magic and the larger your savings will be at retirement age.

Investing based on stock tips. Stock tips are just that, tips. It is supposed to help you invest but not giving you a shortcut. Doing your own due diligence is an absolute must even when you get stock tips from the so-called professional.

Investing for the short-term. The easy access of internet makes it cheaper for small investors to buy stocks online. However, short-term trading is not going to work, no matter how small your commission is. It is extremely hard to predict short-term movement of stocks. Traders come and go and those that stay seldom beat the market in the long run. Furthermore, what do you prefer? Spending a few hours each week and making a 14% return on your investment? Or spending 8 hours a day where the odd of beating the market is slim?  I would prefer to spend just a few hours a week, of course.

Buying stocks because the price is ‘low’. Yeah. That’s right. It is tempting for a lot of people. They figure, if a $ 1 stock can rises a few cents, they will make 20 or even 50 % of their investments !! Sure, you can. But the reverse holds true as well. With a few cents of movement, you can lose 20 or even 50% of your investment !

Investing in sectors you have no clue of. Biotechnology and RFID sounds cool. However, unless you are really really familiar with it, there is no reason to invest in it. You may know how Voice Over IP works, but do you know how does the company make money? If you don’t, then you should stay away from it. There are hundreds of other companies that are easier to understand than how gene works.

Checking your stock price often. You read today’s newspapers and you go straight to the stock price section. You arrive at the office and the first thing you do is going to Yahoo! Finance website. You went home and the first thing you do is turn on CNBC and check your stock price. Get the idea here? While you may check your stock quote anytime you want, but your time may be best served by doing other things. Finding the next best investment opportunity is one such thing.

Paying Too Much Attention to Past Result. A stock just drop 20% in a week and you figure, hey it is cheap. It has a P/E (Price over Earning) ratio of 7 ! Isn’t that cheap? Err…it depends. If you were talking about forward P/E, then of course the stock is cheap. But if you were talking about trailing P/E while your analysis shows that this company will never turn a profit ever again, then the stock is not cheap. An example would be looking at a type-writer company during 1980s.

Lack of Diversification. Investing in one single stock can make you rich. Imagine if you have put all your money on Yahoo! in 1997. It can also break you. What if you have bought into Enron stock instead? I believe your most important investing goal is capital preservation, not capital appreciation. Once you have picked a solid company, capital appreciation will follow.

Over diversification. Contrary to lack of diversification, Over diversification will give your portfolio a mediocre return. Furthermore, having 500 different stocks on your portfolio will cost a significant amount of commission. The ideal portfolio in my opinion should consist of between 7 to 15 different stocks.

Ignoring Insider’s Activity. Insiders are generally people with ownership of a company and who know the inside working of a company. While insider selling may not be negative signs, a spike in this insider selling may spell trouble. Insider buying on the other hand signals a vote of confidence for the company.

Buying Stocks On Margin. While using margin can enhance your return in a rising market environment, the reverse occurs when your stock price drops. As always, the most important goal of an investor is capital preservation, not chasing the highest return.

The Desire to Be Fully Invested. While having all your portfolio fully invested is a good thing, sometimes keeping cash is a better thing. I would prefer my money to earn a 0% return rather than buying a stock that lost 50% in value. Therefore, if you cannot find a good stock to invest, keep the cash.

Investing without knowing technical analysis.  We believe in investing for the long haul. However, it does not mean that we blindly buy any stocks that look undervalued. Supposed a stock A is undervalued at $15. If technical analysis predicts a steeper fall, would you still buy it? Of course not. We would rather buy the stock A at a lower price if all else remains equal.

Unrealistic Investing Goals.  You heard somewhere that TravelZoo (TZOO) rises 20 fold in 2004. That’s right. 2000% in a year. So, you figure, if you can pick 9-10 stocks and one of them rises 20 fold, then 50% annual return for your portfolio is a conservative goal. Well, not really. Think about this. Let’s say you start investing early with $ 1000 investment. If you can maintain 50% annual return for the next 35 years, your $ 1000 will grow to $ 1.46 Billion. Sure, you can have a good winning streak of 50% return for several years. But the odd is, you won’t achieve that for 35 years in a row.

You can view Hari’s other commentary at http://www.noviceinvesting.com. Yep, it is free. No string attached.

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