Successful investors know that there is more to good stock investing than simply picking stocks whose share prices will rise. You add a great deal of value to your portfolio when you also select stocks that are prepared to distribute their profits to the shareholders.

A company can share the wealth in two main ways—it can buy back its own shares, or it can pay dividends. Both pay off for investors, especially in BCE’s case.

While buying Maple Leafs, BCE announces dividend raise and share buybacks

A prime example of just how dividends and buybacks can be a double win for investors comes from BCE Inc. (symbol BCE on Toronto), a stock we cover in The Successful Investor.

In December 2011, BCE made headlines when it teamed up with its telecom rival, Rogers Communications Inc. (symbol RCI.B on Toronto), to buy Maple Leafs Sports and Entertainment (MLSE). Yet even as it was making that deal, the company quietly announced two other initiatives that offer a more tangible reward to shareholders.

The company raised its quarterly dividend by 4.8%, to $0.5425 a share from $0.5175. The new annual rate of $2.17 yields 5.2%. This was the seventh dividend raise by BCE in the past three years.

The company also plans to buy back $250 million of its shares over the next year. That’s less than 1% of its $31.7-billion market cap. And the buybacks will raise earnings per share and other per-share calculations and give the remaining shareholders a larger stake in the company.

If you stick with our long-standing advice of investing mainly in well-established, dividend-paying companies with strong business prospects (like those we recommend in The Successful Investor), you will automatically earn regular dividend income. And you will also have an excellent chance of benefiting from companies that buy back their shares regularly.

Plus, the fact that these companies have strong positions in healthy industries makes it more likely that they will buy back shares on a regular basis, and raise their dividends.

You get our in-depth coverage and recommendations on BCE and many more top Canadian stocks when you try a risk-free introductory subscription to The Successful Investor. As a new subscriber, you can save $50.00 — and get all the details on “My #1 Aggressive Stock Pick for 2012.” Click here to take advantage of this special subscription offer.

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific advice and insights, such as how we select our top stock picks. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “Use our TSINetwork rating system to pick winning stocks.”

Every time we recommend a stock in one of our investment newsletters, we display our TSINetwork ratings (Highest Quality, Above Average, Average, Extra Risk, Speculative and Start-up) next to that stock.

We award these ratings on a point system. We give the points based on nine key factors that determine a company’s ability to survive a business setback and go on to greater success when conditions improve.

Companies with 11 or 12 points fall into the top category: Highest Quality. Those with eight to 10 points are of Above Average quality. Six or seven points means they are of Average quality; four or five points, Extra Risk; two to three points, Speculative; one or no points, Start-up.

This week in the Investor Toolkit, we’ll examine four of these key factors that help us make our top stock picks.

1. One point for offering products or services that benefit from habitual behaviour: These are firms that sell products that consumers must buy, no matter what the economy is doing. These companies can add stability to your portfolio. Food outlets, such as Tim Hortons (symbol TIH on Toronto), a stock we analyze in our flagship advisory, The Successful Investor, are good examples of these types of firms.

Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.

2. One point for freedom from business cycles. Demand periodically dries up in “cyclical” businesses, such as resources and manufacturing. That’s why you need to diversify. Invest in utility, finance and consumer stocks, along with resources and manufacturers.
3. One point for the ability to profit from secular trends, or two points for the ability to profit from two or more secular trends: These trends outlast ordinary business booms and busts, because they reflect ongoing social change. Free trade and rising environmentalism are just two examples of secular trends.
4. One point for industry prominence—two points for industry dominance: Companies that are prominent, or dominant, in their industries are particularly well positioned to weather economic downturns and other setbacks, and fend off new competitors. Top stock picks in this category include firms like Saputo Corp. (symbol SAP on Toronto).
   
   The company is Canada’s largest producer of dairy products, including milk, butter and cheese. Its main brands include Neilson, Stella and Dairyland. It also has operations in the U.S. and Argentina. A substantial 97% of its sales come from dairy products, the rest from snacks and cakes.
   
   With its dominant position in Canada, Saputo is seeking out buying opportunities in the U.S. It has purchased a number of smaller dairy companies and made them more profitable.
   
   Facing rising costs and higher prices for milk, Saputo’s response is to improve its efficiency, chiefly by building a new Toronto warehouse to replace older facilities and merge some of its dairy operations. While these moves will cost $4.6 million, they are expected to save the company $6.5 million annually starting in fiscal 2012.

Next Wednesday, January 25, 2012, we’ll take an in-depth look at the other five factors of our ratings system and the benefits they offer.

As a member of TSI Network, you may have already seen Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada. If you haven’t yet read this new free report, click here to download your copy today. I’d also encourage you to share the report with a friend. It’s my “thank you” just for signing up for my free daily updates.

This past autumn, a long-time reader and portfolio management client asked a question that other investors may wonder about in today’s turbulent markets. He wrote,

“You constantly remind members to have a balanced portfolio and strategy for long-term success when investing. But when do you take profits? You have mentioned a couple of times to sell, such as when a stock makes up too much of your total portfolio, or if a company shows questionable management or business decisions. My main question is why don’t we sell when stocks move up and there are profits to be had?”

I often asked myself that question in my first decade or two in the investment business. In hindsight, it always seems easy to spot market tops and market bottoms. But trying to spot those tops and bottoms as they occur is harder. I investigated all sorts of market theories and signals that purport to tell you how to do it. They all seem to have “worked,” at least some of the time. But none worked consistently.

The problem is that market tops and market bottoms can take place in response to anything that is going on in the market, the economy and the world. But buy and sell signals focus on a tiny smidgen of that vast amount of data. A market signal “works” as an investing strategy when the market is responding to the same slice of data that the signal focuses on. It quits working as soon as the market’s focus moves on to something else.

Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.

Investing strategy: Profiting from stock selection rather than stock market predictions

Investors who succeed over decades—the Warren Buffett’s of the investment world—rarely, if ever, talk about spotting market tops and bottoms. They are far more likely to talk about successful investments than successful market predictions. Most have come to see, often after a period of costly stock-trading errors, that you make most of your stock-market profits through stock selection rather than stock market predictions.

I always have an opinion of some sort about the market’s outlook, and I’m happy to share that opinion with our readers. When I first replied to our client’s question last fall I said, “I see further weakness in the next month or two.” And the market did indeed take several steep declines. “After that,” I added, “I expect a year or more of rising stock prices.”

Why not sell, if the market appears to be headed down as it was then—and then buy back in a month or two when the market is lower?

Investing strategy: Some stocks will rise even when the market falls

There are several reasons not to sell. For one, the market may not go down. For another, when the market is headed for a rise, the best performers in that rise will often begin rising much earlier, and much quicker, than the market averages. One example is Apple Inc., (symbol AAPL on Nasdaq; www.apple.com).

Apple peaked around $200 a share in late 2007. It got down to around $80 in December 2008. It never did go much lower, even though the stock-market averages kept on dropping for four months. By the time the market as a whole hit its low in March 2009, Apple stock had already risen by 30% or more.

By the end of 2009, Apple had gone on to an all-time high. Since then, the stock has more than doubled. Of course, stock performers like Apple are rare. But the pattern is well established.

Stocks that are going to be top performers in the next market rise often start rising early, long before the average stock. We focus on these stocks in our recommendations.

You get our advice and recommendations on investment strategy and regular recommendations and updates on Canada’s top stocks when you try a risk-free introductory subscription to The Successful Investor. As a new subscriber, you can save $50.00 — and be among the first to get the news on Pat McKeough’s “#1 Stock Pick of 2012.” Click here to take advantage of this special subscription offer.

MANITOBA TELECOM SERVICES INC. (Toronto symbol MBT; www.mts.ca) has over 1.3 million telephone and wireless customers in Manitoba. This business now accounts for 54% of the company’s revenue.

The remaining 46% comes from its Allstream division, which provides integrated telephone, Internet and other communication services to businesses across Canada.

In the three months ended September 30, 2011, Manitoba Tel’s revenue fell 1.7%, to $443.2 million from $451.0 million a year earlier. The MTS division’s revenue rose 0.7%. Allstream’s revenue fell 4.6%, mostly because it is closing less-profitable businesses. Earnings per share fell 8.2%, to $0.56 from $0.61. This Canadian stock’s yield is a high 5.7%.

Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.

Canadian stocks: Manitoba Telecom aims to upgrade its wireless systems

Manitoba Tel plans to deploy Long Term Evolution (LTE) wireless technology in 2012. LTE networks are up to five times faster than its current wireless systems. This should help the company sell more smartphones, including the Apple iPhone. The company earns higher fees from these devices than regular cellphones.

The company is also converting its phone and Internet network from copper wire to a fibre-optic system. It should complete this project in 2015. This upgrade will let Manitoba Tel sell more high-speed Internet and digital TV services.

At the same time, the Allstream division is benefiting from its shift to Internet-based communication services. Right now, the division is focusing on clients in multi-tenant buildings that are located near existing fibre-optic networks.

Manitoba Tel has long been an attractive takeover target for a competitor, such as BCE or Telus Those wireless and Internet upgrades make it even more appealing.

We cover a number of utilities and other conservative Canadian stocks in the Canadian Wealth Advisor. In the latest issue, we look at the added possibilities of a foreign takeover of Manitoba Telecom in light of the current Conservative government’s policies. We conclude with our clear buy-hold-sell advice on the stock.

You can get a special risk-free introductory subscription to Canadian Wealth Advisor at a savings of $50.00 off the regular rate. Best of all, your FREE trial contains 5 in-depth Special Reports, and much more. Don’t wait! Click here to get started right away.

From time to time, investors ask whether they should buy stocks “on margin.” That is, whether they should borrow money from their brokers to buy securities. This is a respectable investing strategy, but it carries more than the usual amount of risk.

The main cost involved with buying on margin is the interest on the money you borrow. Plus, when you sell a security that you’ve bought on margin, you must first pay back the loan from your broker.

Interest rates remain low. That does add to the appeal of buying stocks on margin. However, there are a few things to keep in mind if you’re considering this investing strategy:

• Maximize your margin investing with our three-part strategy. If you could stick to a strategy of buying on margin when the market hits bottom, stay margined as the market rises, and sell out at the peak, you could very quickly build an enormous fortune. But the simple fact is that no one has the sense of superhuman timing necessary to consistently succeed in that.
  
  That’s why we continue to recommend that if you are going to use margin to invest, it’s all the more important to stick with our three-part investing strategy: mainly invest in well-established companies; spread your money out across the five main economic sectors; and avoid stocks that are in the broker/media limelight.
  
  If you rigorously follow that advice, you stand to make money over long periods. With margin, you’ll make even more.

Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.

• Increased leverage can work for or against you: The main risk of buying stocks on margin is that it increases your leverage. Leverage works two ways: It magnifies your profits when the market moves in your favour, but it magnifies your losses just as surely when the market moves against you. That’s because the amount you owe on your investment loan stays the same, so every dollar lost in your portfolio comes straight out of your equity.
• Buying stocks on margin has tax advantages: When you buy on margin, you’ll be able to write off your margin interest in full against ordinary income in the current year. However, you’ll pay less than ordinary income tax rates on dividends from Canadian stocks, thanks to the dividend tax credit.
  
  Above all, you’ll defer all capital gains taxes until you sell, and only pay taxes on capital gains at half the rate you pay on ordinary income.

Investing strategy: Take this simple test to see if you should buy on margin

Due to its increased risk, buying stocks on margin is certainly not for everyone. That’s why an investing strategy of buying stocks on margin only makes sense if you can answer “yes” to all three of the following:

1. You are in the top tax bracket and expect to stay in it for the foreseeable future;
2. You follow our conservative three-part investing approach (see above);
3. You invest consistently over a number of years, and resist the temptation to increase your margin borrowing when stocks have risen, or reduce it when prices have dropped.

If you are unsure on even one of these points, you are better off not to take any chances buying stocks on margin.

For advice on how to spot the best undervalued stocks – and how to avoid those that are overhyped – you can download a free copy of my latest free report. Click here to download your copy of Bargain Stocks: Your Guide to Finding the Best Undervalued Stocks. I’d also encourage you to share the report with a friend.

In the Canadian stock market, strong sustainable dividend yields are usually associated with financial stocks and utilities, not necessarily with industrial stocks that depend more heavily on the overall health of the economy.

Yet today we cover one Canadian industrial stock that raised its dividend payment by almost 10% in September and maintains an attractive yield.

This company is one of North America’s largest metal distributors. It serves its roughly 30,000 customers through a network of 50 locations in Canada and 12 in the U.S.

In the three months ended June 30, 2011, this firm’s earnings per share rose sharply, to $0.43 from $0.14 a year earlier.

Revenue rose at all three divisions: The steel distribution division’s revenue rose 19% due to higher sales volumes and steel prices. Metal services revenue rose 24%, also on higher sales volumes and prices. The energy tubular products division, which supplies pipes for oil and gas companies, saw its revenue rise 19% on higher drilling activity.

Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.

Canadian stock market: Oil and gas drilling accounts for 30% or revenue

This company raised its quarterly dividend by 9.1% with the September 2011 payment, to $0.30 from $0.275. The stock now yields 5.4%. Further increases are likely. The company holds cash of $223.9 million, or $3.34 share. Its $302.0 million of long-term debt is a reasonable 20.1% of its market cap.

The company continues to prosper. But it does face challenges. Customers in the oil and gas drilling industry account for about 30% of the firm’s revenue. That, plus its exposure to fluctuating steel prices, adds risk. Meanwhile, the company plans to keep selectively buying competing firms. That also adds risk.

In the latest edition of Stock Pickers Digest, we reveal this industrial stock’s identity and assess its long-term outlook in light of those risks. We conclude with our clear buy-hold-sell advice.

If you’re looking for stocks with the potential for gains of 50% or more in 6 months or less, you should subscribe to Stock Pickers Digest.

The latest issue of Stock Pickers Digest gives you our full analysis, including clear buy/sell/hold advice, on 20 stocks that may be suitable for the part of your portfolio you devote to aggressive investing. What’s more, you can save $50.00 off regular annual subscription rate. Click here to learn how.

Pat McKeough responds to many personal questions on specific stocks and other investing topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.

This week, one Inner Circle member asked for an update on a pipeline firm that sometimes appears to be overshadowed by the most prominent names in the industry like TransCanada and Enbridge. Here is Pat’s reply.

Q: Hi Pat: Can you give me a report on Inter Pipeline Fund? Thank you for your good advice.

A: Inter Pipeline Fund, (symbol IPL.UN on Toronto; www.interpipelinefund.com), transports, stores, markets and processes oil and natural gas.

The fund has three divisions: pipelines transports 35% of Canadian oil sands production and 15% of western Canadian conventional crude oil; extraction processes 40% of Alberta’s exported natural gas into natural gas liquids; and the storage division, which operates under the Simon Storage and TLG banners.

In the three months ended September 30, 2011, this income stock’s revenue rose 30.4%, to $302.1 million from $231.7 million a year earlier. Cash flow per unit jumped 43.3%, to $0.43 from $0.30. That’s mainly because the company’s pipelines shipped 993,300 barrels a day in the quarter, up 24.6% from 797,300 barrels a year earlier. The increased volumes came mostly from a $1.8-billion expansion of the fund’s Corridor pipeline, which was completed in January 2011.

Income stocks: Inter Pipeline raises its dividend payout

The fund is taking steps to diversify its operations. Earlier this year, it announced that it will buy four petroleum-storage terminals in Denmark from a subsidiary of Dong Energy A/S for $500 million. The purchase will increase Inter Pipeline’s petroleum capacity by 10.7 million barrels, to a total of 19 million barrels.

Inter Pipeline is raising its monthly cash payout by 9.4%, to $0.0875 per unit from $0.08 per unit with the December 2011 payment. That gives the units a 5.6% yield.

In his analysis of this income stock’s prospects in the Inner Circle Q&A, Pat assesses the effect of oil price fluctuations on Inter Pipeline’s revenues and whether or not the company can sustain its high dividend yield. He also looks at the risks of the company’s new overseas venture, as well as the potential rewards. He concludes with his clear buy-hold-sell advice.

Inner Circle members see Pat’s analysis and recommendations on the stocks other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re an aggressive or a conservative investor, these weekly updates are designed to give you specific investment advice. Each Investor Toolkit update gives you a fundamental piece of investing strategy, and shows you how you can put it into practice right away.

Today’s tip: “There are 5 ways in which stock options can cost you money.”

From time to time, you may hear favourable opinions on stock options from brokers or the media. Frequently, those opinions stress the relative safety of certain options as a way to hedge your investments. But they may not be as candid about the downside. The fact is, stock options carry a number of hidden risks for investors.

Stock options come in two varieties. Calls give you a right, but not the obligation, to buy a stock at a fixed price, for a fixed period. Puts give you the right, but not the obligation, to sell.

Options trade through stock exchanges, and each options contract is for 100 shares of a particular company. So one contract quoted at $2 will cost you $200 (before commissions). Here are 5 risks with stock options you should know about:

1. Costs are high: You pay commissions each time you buy or sell stock options. Commissions eat up a large part of any profits you may make with stock options, particularly if you trade in small quantities. What’s more, every trade costs you money in “slippage,” or the difference between the bid and the ask. With options, this difference is larger than it is with stocks.
2. Options can expire worthless: Unlike common stocks, an option has a limited lifespan. You can hold common stocks indefinitely in the hope that their value will increase. A stock holder can wait out a temporary downturn in the hope of eventually realizing a profit. But every option has an expiration date.
   
   If an option is not sold or exercised prior to its expiration date, it expires and is worthless. For this reason, an option is considered a “wasting asset.” Part of the price you pay for an option is for “time.” With each day that passes, you lose more and more of this “time” premium.
   
   To profit in stock option investing, you have to be right in three different ways: price direction, price-change magnitude and time.

Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.

3. Price direction: In order to make money in stock options, you have to be right about the direction of a stock’s price. If you buy a call option, you’re betting the price will rise. With a put option, you’re betting the price will fall.
4. Magnitude: Assuming you’re right about the direction of the stock price, you must also be able to predict the minimum amount that a stock will move. If the stock moves up or down by only a small amount before expiry, you’ll still lose money.
5. Time: The fact that options are valueless once they expire means an option holder must not only be right about the direction of both the price change in the underlying interest and the magnitude of the move, but also about when the price change will occur. If the price of the underlying investment does not go far enough in the anticipated direction before the option expires, the holder will lose all, or a big part of, the investment in the option.

Our investment advice is that you should avoid the hidden risks that come with options. There are risks for common shareholders as well, of course, but these risks can be clearly identified. My value investing system follows a conservative, reduced-risk strategy that works especially well in unpredictable markets. If you’d like me to personally apply my time-tested approach to your investments, you should consider becoming a client of my Successful Investor Wealth Management service. Click here to learn more.

Pat McKeough responds to many personal questions on specific stock market investments and other investing topics from the members of his Inner Circle. Every week, his comments and recommendations on a selection of the most intriguing questions of the past week go out to all Inner Circle members. And every Friday, we offer you one of the highlights from these Q&A sessions.

One question this week anticipated the winter holiday season. An Inner Circle member asked about the prospects of Carnival Corp., a leading cruise ship company.

Q: Hi Pat: Wondering what your thoughts are on Carnival Corp. Thanks.

A: Carnival Corp. (symbol CCL on New York, and its affiliate, Carnival plc, symbol CCL on the London Stock Exchange; www.carnivalcorp.com) operate as a single business but have separate exchange listings.

The combined company is the world’s largest cruise ship operator, with over 100 ships. It took its current form in 2003 through the merger of Carnival and rival P&O Princess.

Major brands include Carnival Cruise Lines, Princes Cruises, Holland America Line, Costa Cruises and Cunard Line. The company also operates ports and hotels.

Carnival gets 60% of its revenue from its North American operations (mainly in the Caribbean). It gets the remaining 40% from Europe, Australia and Asia.

Stock market investments: Carnival increases earnings despite jump in fuel costs

In its third quarter, which ended August 31, 2011, Carnival’s revenue rose 11.7%, to $5.1 billion from $4.5 billion a year earlier. Passenger tickets accounted for 77% of the company’s revenue. The remaining 23% came from onboard services, such as casinos and gift shops.

Earnings rose 2.6%, to $1.34 billion from $1.30 billion. Earnings per share rose 4.3%, to $1.69 from $1.62, on fewer shares outstanding. Carnival’s earnings increased even though its fuel costs jumped 46.7%, to $581 million from $396 million. Carnival does not use hedging contracts to cut its fuel-price risk.

The stock has dropped 24% in the past year. It now trades at 11.9 times the $2.86 a share that Carnival is forecast to earn in 2012. The $1.00 a share dividend yields 2.9%.

In his analysis of the stock in this week’s Inner Circle Q&A, Pat looks at the potential risks and rewards of Carnival’s decision to invest in new ships. He also considers whether, in an uncertain economy, Carnival can continue to attract customers with initiatives such as theme cruises centred on musical performers or sports teams. He concludes with his clear buy-hold-sell advice.

Inner Circle members see Pat’s analysis and recommendations on the stocks other members have asked about in each week’s Inner Circle Q&A. You can view it immediately when you become a member of this special investment group. You will get Pat McKeough’s answers to your personal investment questions, full access to our members-only Inner Circle website, and many other membership privileges. Click here to get started right away.

(Note: If you are a current member of the Inner Circle, please click here to view Pat’s recommendation. Be sure to log in first.)

Today’s tip: “These 3 investment errors can hinder your returns and make you miss out on good investments.”

Two weeks ago, we pointed out three investment mistakes – adopting an unrealistic investment strategy, trusting in new issues and buying too many popular stocks pushed by brokers and the media. (View the post: Avoid these three investment mistakes.)

Of course those are not the only errors investors can make. Today, we discuss three fairly common errors we remind our readers of from time to time. Almost all investors make one or more of these mistakes sooner or later, and they can be costly to correct.

1. Too little diversification among the 5 sectors: Manufacturing and Resource stocks involve extra risk, Canadian Finance and Utilities involve lower risk, and the Consumer sector falls somewhere in between. Sectors go in and out of investor favour, depending on economic conditions, corporate earnings, and investor whim. But in the long run, winners and losers will appear in all five.
   
   If you stick to one or two sectors when you buy stocks, you may get lucky and all of your picks will be successful ones. But all your stocks could wind up out of favour and depressed. If you have to sell, you’ll do so at a low. So, spread your money out to eliminate luck. That way, you’ll always have exposure to the year’s most profitable investments, a key to successful investing.

Don't miss your chance to download Pat McKeough's free report, "Stock Market Investing Strategy: Pat McKeough's Conservative Investing Guide for Making Money & Cutting Risk." In this report, Pat gives you simple, plain-English advice that can help you cut your portfolio's volatility — even in unpredictable markets like today's. Click here to download your copy and get started right away.

2. Selling good stocks in anticipation of a market downturn: In times of market pessimism, many investors are tempted to sell all of their stocks, regardless of quality, in hopes of getting back in at lower prices.
   
   However, selling to avoid a market downturn rarely works out as neatly or as profitably as sellers hope. First, some stocks hold steady or go up during a downturn — these are often the strongest stocks in the subsequent upturn. And sometimes the downturn ends much more quickly than you expected. Then to get back in you may find yourself compelled to buy stocks months or even years later, at much higher prices.
   
   Other times, the market moves up, the seller buys back in, and the real downturn strikes. That can leave you down 20% or more on a 10% market downturn.
3. Failing to consider conflicts of interest: Financial incentives have an enormous impact on the beliefs of otherwise honest people: That’s particularly true when it comes to what they are willing to say in order to spur you to buy something.
   
   Failing to spot these conflicts of interest before you buy stocks can be very damaging to your investments. We’re not just talking about stock brokers. As the saying goes, never depend on your barber to tell you that it’s too soon for you to get your hair cut.

For advice on how to spot the best undervalued stocks – and how to avoid those that are overhyped – you can download a free copy of my latest free report. Click here to download your copy of Bargain Stocks: Your Guide to Finding the Best Undervalued Stocks. I’d also encourage you to share the report with a friend.