Being an awesome investor and beating the major indexes is so easy to do, it seems that every other email in my inbox is highlighting strategies on how to do it. So, I thought I’d compile my list of activities that can help you be the opposite – the worst investor ever.
1. Trade Frequently
You have probably heard of this before, but trading frequently can be extremely detrimental to your returns. If you are trading daily or even weekly, you are probably spending a small fortune on commissions. Beyond the fees, you need to look at you returns as well. Constantly entering and exiting positions is more like gambling that investing, since you are focusing on short term price movements instead of investing in companies for their fundamentals.
2. Don’t Do Research
Not doing research on you investments an be a huge downfall. Even doing the basics – I like company XYZ because of what it sells is better than taking the advice of an Internet message board or email. Make sure you understand what you are buying if you want to not fail.
3. Buy Penny Stocks
If you invest in penny stocks you have one story over the long run (not just for a month, but for years) – losses. There is a reason these stocks trade for less than a dollar – their financial position merits it. Yes, every now and then one takes off, but that is the rare 1 in 1000 case. These stocks are extremely volatile,and they have no place in a true investor’s portfolio.
4. Buy Leveraged ETFs
Buying leveraged ETFs is another investment that is for poor investors. These investments are all contract based, and as a result, don’t even mimic the underlying index over time. So, if you want skewed results, this is the investment for you.
5. Not Thinking About Taxes
Bad investors don’t think about taxes – just look at their investment choices. They trading often, buying volatile companies, and not thinking about how to do it efficiently. Are you invested in tax deferred accounts or a standard brokerage? Bad investors don’t even know!
This is not by far a complete list of bad investing behavior, but I think it does cover a lot of the key bad investor issues.
Readers, what are your thoughts? Do you have anything to add, or don’t agree with what I said?
Related posts:
{ 13 comments… read them below or add one }
I would add “don’t invest at all” and “buy high, sell low”
Good call – too many people buy low and sell high, but usually for one of the reasons above!
I have one to add (since I just published the topic today LOL!). – Spend your money on investing newsletters. It’s the biggest scam in town, and now Suze Orman was called out by wsj.com as well (what a week she’s having after that card debacle).
I agree completely! Make your own sound decisions on where to invest!
Great advice! I agree about short term investments being more lake gambling, I don’t worry too much when my stocks go down because normally I’m in it for the long haul.
That’s the way to be – long term!
Putting all eggs in one basket is another example of being a poor investor.
Very true – I don’t know how I forgot this one!
i think the main factor that can cause you a fail in the investement world is not to do Research and i dont think you gave it its true power in your article , now internet – the easiest info base you can acess in my opinion- has a LOT of informations and experiences and everything you wanna learn and know really and i think its a shame that most people ignore this before you go to any investement i think you should do some serious research on it and especially the experiences and advices of the people that are there before . overall great tips these ones are really BASIQ
While all of the items on the list are true, it should be noted that many highly profitable traders do at least some of the things on your list – 1, 2 (sort of) and 5. They don’t care about penny stocks (no liquidity) or leveraged ETFs (they’ve got futures accounts and don’t need ‘em) so those are bad for pretty much everyone.
That said, the typical investor is about 15,000 hours of experience behind the average index desk trader, so this list is fine for the average Joe.
If you have no desire to be the average Joe and want to develop serious trading skills, you might find my blog interesting.
The funny thing is the only why I don’t trade frequently is because I am lazy, the same reasoning goes for penny stocks.
Being lazy has its benefits sometimes.
Good read. I think the commenters pretty much hit in extra nail on the head.
-Ashley Morrissey
ashleymorrissey90(at)yahoo(dot)com