Top Ten Mistakes Most Investors Make:

1.  Not having a plan – Why are you investing? Do you want to invest in growth or value stocks?

2.   Not knowing how much risk you can bear - Knowing how to invest depends on your age, purpose, how much money you can invest, and how much you can afford to lose realistically.

3.   False sense of diversification – Simply put do not put all of your eggs in one basket. Spread the money around. Some ways to do this is to buy in different sectors. Spread your money out. Buy some retail, energy, home improvement and some tech. Other ways to diversify is to put some of your money in stocks, bonds, C.D’s, gold or real estate. Bottom line do not put all of your money in the same place.

4.  Unrealistic Expectations –  You must have an idea when you want to sell or buy. Know when you want to sell for some rewards.  Do not get greedy and think the stock is going to keep going up. This is not an emotional game. Too many times people get caught thinking the company will continue to do well and make them rich. Have a realistic trade plan. 

5.  Investing in stocks, not companies  – Research the company you want to invest in. How was business for this company last quarter? How has the stock done over the past one to five years? What can be read about this company in the newspaper? Does this company have any future expansion? Will this company offer dividends? Has it split in the past?

6.  Tax-avoidance   – Know what taxes you have to pay on your capital gains. Also, know the difference between gains and fees and taxes. How much will the stock make after fees and taxes?

7.  Account Neglect – Keep an eye on your investment. Check weekly to see how your stock prices are. Keep these questions in mind: Is the portfolio diversified? Is it time to trade (buy or sell)? What is in the news about the companies? What is the market doing (bear vs. bull)? 

8.  Selling Low – An investor buys Ford at $10.00 a share. It goes up to $15.00. After awhile it slides down to $8.00 and continues to $5.00. Do not sell it at $5.00. Hold on to and see if it goes back up. It should have been sold at $15.00 when it was going UP!  Generally investors will buy when a stock is low or going down. Likewise they will sell when the stock price is going up.

9.  Buying High – As stated above, buy stock when the price is going DOWN!  This might sound simple, but investors make this mistake all the time. 

10.  Acting on tips and sound bites – Would you give your money to a family member or friend and tell them to go to the Casino and make you money? Probably not! So don’t invest your money because your buddy told you what to buy. You have to do your own research. Check out the company and make the decision for yourself. 

SITUATIONS THAT MAY CAUSE STOCK PRICES TO GO UP OR DOWN

What makes stock prices go up?

• Take over Bids – A take over bid is an attempt by one company to buy another through stock acquisition; by buying enough stock to control it. The stock of the company taken over becomes more valuable as the larger company makes offers. 
• Profit – A report about the increase profits of a company usually indicates that the company is prospering and may increase its dividends (a portion of a company’s net income paid to shareholders as a return on their investment). This may draw investors and increase the price of its stock. 
• Divestiture – Large conglomerates ( a business enterprise consisting of widely diversified companies) often have one division of their corporation, which does not make money. By announcing the sale of its losing interest, its potential for profits increases and its value will rise. 
• New product line – A company produces a new product.
• Government spending – The U.S. government is the worlds leading consumer.

What makes stock prices fall?

• High interest rates – Higher interest rates make it hard for companies to borrow money for expansion. Less growth may frighten away potential investors.
• Increase in margin rates – The Federal Reserve can increase the margin rate; thereby limiting the amount of money a broker may lend his/her customer. For example, a 50% margin rate means that a person who wants to buy $10,000 of stock on margin must have $5,000 (50%) in cash, and may borrow the other $5,000 from the broker.  If the rate is raised to 80% the buyer must increase his cash contribution to $8,000.
• Investigation by SEC – The Securities and Exchange Commission is the watchdog for the investment industry.  If they are investigating a company this may scare off investors.
• Government instability – If a foreign company that supplies the U.S. with oil, for example, were going through a revolution, uncertainty would be created about the future of American companies, which depend (either directly or indirectly) on oil. 
• Accident, Health problems – News about an accident or a product which may cause health problems, may cause investors to fear the company will not be able to regain its customers or reputation. 

The Young Investor Webpage is funded in part by a grant from the Investor Protection Trust, www.investorprotection.org

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