A Fool and His Money are Soon Parted Part I

Posted by dfederman on May 24, 2011 in Investor Education | Comments Off

Outline by Dan Federman, CFP®

Click here for Part 2

“It is said that only a fool learns from his own mistakes, a wise man from the mistakes of others.” – Otto von Bismarck (1815-1898) Prussian German statesman and aristocrat.

“From the errors of others a wise man corrects his own.” -Publilius Syrus (1st Centry BC-?) Roman writer and poet.

“Experience: that most brutal of teachers. But you learn, my God do you learn.” -  C.S. Lewis quotes

“Experience is the name we give to our past mistakes” – Oscar Wilde quotes

“Good judgment comes from experience. Experience comes from bad judgment.” -     Unknown

 

Below are some investment and financial mistakes we’ve seen people make. Let’s be wise and learn from others’ mistakes!

  1. PROCRASTINATION
    1. Save Early. Save Often.
    2. If you have Assets to Protect or Income to Replace in the event of catastrophes, get properly insured while you can.
  2. ACTING OUT OF GREED (TRYING TO GET RICH QUICK)
     

    1. BUYING AN “INVESTMENT TIP”
      1. Listening to a friend, coworker, family member who tells you a stock is going to “double in six months.”
    2. BUYING A “GOOD STORY” WITHOUT CONSIDERING RISKS OR FUNDAMENTALS
      1. ex. “alternative energies” – makes sense, but businesses such as ethanol, electric cars,etc. may not be profitable for a very long time.
      2. Funds designed to double the performance of a particular market sector do not work.
    3. LISTENING TO FORTUNE TELLERS
      1. Many newsletter writers who sell subscriptions attract “sheepish” investors looking for the Promised Land.
      2. NO ONE HAS A CRYSTAL BALL.
      3. PREDICTING THE FUTURE IS SPECULATIVE.
      4. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS.
      5. Ask yourself, “Who is on the other side of this trade, why do you know more than they do and is this a fair price?” If there are many willing buyers and sellers, by definition, it is a fair price. (source: IFA.com)
    4. MAKING ENORMOUS CONCENTRATED BETS.
      1. Ex. Betting big on energy stocks, Gold, tech stocks, real estate,etc.
      2. Over-concentrating in employer stock.
    5. SEEKING HIGH YIELDS ON CASH OR OTHER INVESTMENTS
       

      1. high yield = high risk
    6. INVESTING IN FADS
      1. Ex. Green energy, dotcoms, social media
  3. ACTING OUT OF FEAR
    1. Catastrophisizing – believing today’s disaster will continue indefinitely into the future.
    2. Basing investment decisions on daily headlines in the media.
      1. Turn off the TV
      2. Don’t open your statements during bear markets (but check with an advisor to see if you are properly diversified in the first place)
    3. Buying bear market funds or shorting stocks, attempting to capitalize from a downturn in the markets.
  4. ACTING OUT OF EMOTION
    1. Buying in a state of euphoria and selling in a panic and leads to “buying high and selling low.”
  5. ATEMPTING TO TIME THE MARKET
    1. “Let’s wait it out until things get better”
    2. “Let’s take profits and buy on the next dip.”
    3. MARKETS MOVE FAST. MISSING THE 10 BEST DAYS EACH YEAR CAN SIGNIFICANTLY DIMINISH INVESTMENT RETURNS
  6. FAILURE TO HAVE A POSITIVE ATTITUDE ABOUT THE FUTURE

If you need to review your portfolio or personal financial situation, please feel free to contact us 1-800-808-7488 x101, visit us at www.aribaasset.com, or read our blog www.2020insight.com.

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