posted on 24 November 2016
by John Persinos, InvestingDaily.com
I get some of my best topics from readers. This email arrived yesterday in my inbox and it’s worth sharing:
Think about the past election? I’d rather remove my own spleen with an oyster knife. But it’s true, during my three decades as a financial analyst, I’ve encountered a lot of stupid investment assertions.
Albert Einstein once said:
As part of my civic duty to make you a better investor, here are five of the dumbest investing statements I’ve ever heard, followed by a quick remedial lesson from me. These phrases are all-too-common and deadly for your portfolio.
See if you can read my list, without wincing or slapping your hand on your forehead:
1) “I wouldn’t buy stocks right now because the market is performing badly."
This has been a particularly volatile year, rife with uncertainty. But don’t watch market fluctuations too closely. If you put your money into inherently strong companies, they’ll be fine 10, 20 or 30 years from now. Bull and bear markets come and go, but equities as a whole rise over the long haul.
2) “My portfolio is diversified because I bought a mutual fund that tracks a broad market index."
Diversification is important and a mutual fund pegged to, say, the S&P 500 is a good start. But it’s not nearly enough. You should also diversify among various categories of stocks, bonds, interest-earning investments, real estate, international equities, etc.
3) “I just bought a stock and it’s tanking, so I’m gonna cut my losses and dump it."
Checking the performance of your portfolio or a single stock on a frequent basis is a recipe for losing money. Keep sight of your strategic investment goals.
Once you’ve bought a stock with solid fundamentals, remain patient and don’t get rattled by temporary setbacks and the inevitable ups and downs.
Jim Pearce, chief investment strategist for our flagship publication Personal Finance, offers this level-headed guidance:
This “IDEAL" (Investing Daily Equity Analysis List) system ranks all 500 equities in the S&P 500 according to three variables that are highly correlated to share price. These variables are dividend yield, growth in cash flow, and relative value. The total score is on a scale from 0 to 10.
I’ll provide more details about the IDEAL system in future issues.
4) “My broker is a genius and will make me a fortune."
If there’s any recurring theme in this publication, it’s the need for you to think for yourself. Many brokers are reputable, honest and hardworking. But not everything a broker does is solely to your benefit. There can be some self-interest built into a broker’s advice.
Falling for bad advice can wreck your returns. You must arm yourself with investment information that’s objective and based on the facts, not advice from someone who makes a living from commissions. Do your own homework.
5) “The investing rules are different this time around."
Number five is particularly harmful. Certain immutable laws govern the economy and financial markets; they don’t change over time.
Solid companies are in an industry you understand, selling products and services that people love, have long-term value and are fairly valued. An investor who says these time-tested rules no longer matter is a sheep about to get fleeced.
As Forrest Gump might say, in surveying this sampling of investing misconceptions:
Have you overheard (or in a weak moment uttered) a really dumb remark about investing that you’d like to share? Drop me a line at: firstname.lastname@example.org
Smart versus dumb money…
The fast-moving technology sector seems to attract the smartest…and the dumbest…money. I’m reminded of this staggeringly obtuse statement, uttered by someone who should have known better:
Those words were spoken in 1977 by Ken Olson, the founder of Digital Equipment Corp. (DEC), about the burgeoning personal computer industry and its stocks.
As upstarts such as Apple (NASDAQ: AAPL) soared, revolutionized society, and made billions of dollars, Olson never was able to re-position his once-mighty company, which made “minicomputers" for businesses. Over the years the floundering company’s assets were sold to various other companies, such as Compaq. DEC merged in 2002 with Hewlett Packard (NYSE: HPE), which ceased to use the DEC name and later encountered its own woes.
Are you looking for the next Apple? Our investment team has found a tiny company that makes a device that’s poised to rival the iPhone in popularity.
The iPhone is the fastest-spreading technology in history. Faster than the PC or TV. But one technology is now spreading five times faster. And in the coming months, it’s poised to create even more millionaires than Apple.
As I continually remind readers, one of the best ways to make money is to invest in small, technologically innovative companies that have a head start over rivals in a certain product or service and own proprietary technology that’s upending the status quo.
We’ve pinpointed a small company that fits this description. Although it’s unknown to most investors, this company stands in the forefront of one of the hottest, most disruptive technology trends around.
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