10 Mistakes Every Investor Makes and How to Avoid Them HTML version

10 Mistakes Every Investor Makes & How to Avoid Them
Mistake #9 – Acting on Stock Tips
Think about this: A friend has a tip from another friend who works for
a company that is about to report a very strong earnings report. He
urges you to jump on the stock in order to make a pile of money on a
“sure thing.”
The recommendation sounds tempting. You toss
and turn all night as you think about how much
money you can make if your friend is right. In the
morning you decide instead of just buying the
stock, you’ll buy 100 call options and make 10
times the amount of money you would with a
Obviously this decision has a few problems. For one, it constitutes
insider trading, which is illegal. Secondly, it violates any rules of
protecting your downside by not doing your own research first and
determining if this is a company worth owning.
Maybe most importantly, what does your friend know about
investing? Is he qualified to be giving you expert financial investing
advice? Why are you trusting your money on a tip?
Avoid listening to the wrong people who are not qualified to be giving
you advice, do your own due diligence, and stick to your rules. If
professional investors cannot accurately predict the direction of the
market, chances are your friend is not capable of giving you advice.
Similarly, just because an analyst suggests that a stock is overvalued
during a television interview, this is not a good enough reason to run
out and sell the stock. As stated in Morningstar.com:
Any stock you read about in a newspaper, hear about on CNBC, or learn
about in a column like this one deserves further investigation before
committing your own money. Why? First of all, it’s your money, and
second, how are you going to know when to sell? You certainly can’t rely
on that smart pundit to reappear in your favorite financial magazine and
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