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Friday, October 13, 2006

Franchising Errors in stock and mutual funds investing

Chris Lott, Thomas Price

The Wall Street Journal of June 18, 1991 had an article on pages C1/C10 on Investment Errors and how to avoid them. As summarized from that article, the errors are:

  • Not following an investment objective when you build a portfolio.
  • Buying too many mutual funds.
  • Not researching a one-product stock before you buy.
  • Believing that you can pick market highs and lows (time the market).
  • Taking profits early.
  • Not cutting your losses.
  • Buying the hottest {stock, mutual fund} from last year.

Here's a recent quote that underscores the last item. When asked "What's the biggest mistake individual investors make?" on Wall $treet Week, John Bogle, founder and senior chairman of Vanguard mutual funds, said "Extrapolating the trend" or buying the hot stock.

On a final note, get this quote on market timing:

In the 1980s if you were out of the market on the ten best trading days of the decade you missed one-third of the total return.

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