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Most successful investors agree that it’s a good idea to base investment decisions on facts rather than predictions. You can make mistakes with facts, of course, but predictions have a much higher failure rate. However, one little noticed obstacle to investment success is that it’s easy to mix the two up. Perhaps the best example of this is the tobacco industry. Starting a few decades ago, cigarette makers came under relentless attack from government, health authorities and lawsuits. Many investors took it for granted that the industry was doomed. Lots of smokers quit, and this hurt cigarette demand. But the obvious negatives stopped new competitors from entering the industry. Laws against cigarette advertising limited advertising expense for the industry, so profitability rose. Cigarette makers were able to pass the costs of litigation and regulation onto their customers. Meanwhile, tobacco use grew quickly in emerging markets....
Some investors believe that market timing—trying to figure out if the market will rise or fall—is or can be an aid to their investing decisions. However, most investors who try to time the market find that it costs them money in the long run. When it works, it may help them make some modest profits or avoid some modest losses. When it fails, on the other hand, it often does so in a bigger way. At times it leads to ghastly losses. The key risk in market timing is the “false signal”. That’s when the market does exactly the opposite of what the timer expected. In fact, some false signals may seem like sure things until they fail. Market timers may multiply the danger from false signals by making much bigger transactions that usual. They can also raise their risk by shifting to more aggressive and highly leveraged forms of trading—delving into stock options or futures trading, for instance....
When investors get in the habit of using one investment measure to buy stocks, they often find that it can be dangerously misleading.
Today’s tip: “Early experiences may lead you to prefer either value investing—trying to buy stocks at bargain prices—or growth investing—looking for rising stocks with further growth ahead. Here’s why you should combine the two. ” If you meet a large number of investors over a large number of years, it may seem they come in two basic categories—one inclined toward value investing, the other more interested in growth. This may be due in part to their early life experiences. Value investing—trying to buy assets at bargain prices—has natural appeal for those who grew up in strained economic circumstances. Growth investing—trying to identify and buy rising stocks when they have further growth ahead—seems to appeal more to those who grew up in prosperous households....
Are TV financial pundits guilty of pump and dump schemes?
When you let “theme investing” play a role in an investment decision, weigh your decision carefully before you act. Make sure you have other reasons to buy. After all, a powerful investing theme can overwhelm your judgment. It can lead you to buy stocks that have little genuine appeal. For example, the most powerful investing theme of the past few decades was the Internet stock mania. By the second half of the 1990s, it was clear that the web was going to have a huge impact on the economy and the world, and was going to create vast fortunes. Those assumptions were absolutely accurate. However, it’s easy to set up a company with an Internet-based business. It’s much harder hard to create a profit-making company, regardless of a link to a fashionable investing theme. That’s why unsuccessful Internet-based stock promotions vastly outnumbered the pioneering Internet stocks that prospered. It’s why most Internet speculations turned out to be terrible investments....
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 investment tips and stock market advice. Each Investor Toolkit update gives you a fundamental piece of investment advice, and shows you how you can put it into practice right away. Today’s tip: “While stock options frequently make a lot of money for brokers, but most investors are more likely to lose with options. Here are seven ways they can cost you money.”...
Recently a member asked a question that you may also have wondered about over the years. “Why is it that recommendations from the various pundits, CEOs, brokers and money managers so often go down rather than up after they tout their stuff on [a Canadian cable-TV financial channel]? Are these guys above pumping and dumping?” “Pumping and dumping” is far too strong a term. After all, that’s a form of stock fraud....
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 investment advice. Each Investor Toolkit update gives you a fundamental piece of strategy, and shows you how you can put it into practice right away. Today’s tip: “Dividends can produce as much as a third of your total return over long periods.”...
Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a new or experienced investor, these weekly updates are designed to give you specific advice on a wide range of investing topics, including trading stocks online. Each Investor Toolkit update gives you a fundamental tip and shows you how you can put it into practice right away. Tip of the week: “Online trading seems like an easy and convenient way to invest, but that can also make it an easy way to lose money.” Some investors may look on online trading as a fairly quick and convenient way to build wealth, but there are many hidden dangers that may not be easy to spot at first....
