When you’re picking stocks, you have a big decision ahead of you. You’re investing money, which can be a gamble. There are plenty of articles suggesting ways to pick stocks (even on our site here at Alot Finance), but not as much on how not to pick stocks. Be careful to avoid the following missteps in your investment adventures!
“I like make-up, so I should invest in Maybelline.”
Common mistake, but a dead giveaway that you’re a rookie. Just because you like a product doesn’t mean it’s a good investment. (I mean, someone had to have liked New Coke.) Don’t get stuck with the monetary equivalent of a warehouse full of snuggies. Use your head, not your heart.
“It’s only a penny?? Give me ALL of the stocks.”
There aren’t many things you can buy with a penny since the days of penny candy are over. Really, the only purchases you can make for one cent are gambles: penny stocks and penny slots. When you’re investing, try to think of penny stocks the same way you think of penny slots. There’s always a chance you’ll win big, but it’s more likely that you’ll find yourself losing.
“I want this one. Oh, and that one. And lets throw in this other one, too.”
If you don’t have goals, you’re going to end up with an investment portfolio that is all over the place. Maybe you’ll buy up stocks in a pharmacy, a pet store, and an auto manufacturer. Diversification is good, but if you’re too spread out, you’re going to have a hard time keeping track of the values of each company.
“Oh, this is the hot new thing! Take ALL of my money.”
The hot new thing can be a great investment opportunity, but it can also be a huge risk. If you’re picking a new stock, maybe you should consult a financial advisor. If you’re going it alone, check to see if your dream investment is providing something new with minimal competition, meeting a real need, and will be able to make money year after year.
“I want to invest in stocks because that’s how you get rich in the movies.”
Well, you’re probably not thinking this exact same thing. Maybe you’re telling yourself, “I want to be Warren Buffet and this is how I can do it!” That’s pretty unlikely, statistically speaking. There’s a chance you’re actually really good at investing and you don’t know it yet. There’s also a chance you’ll lose a lot of money.
In a nutshell, avoid picking stocks on impulse. Use your brain, and if you doubt your brain, spring for the cost of a financial advisor.