Daily Gains Letter

investor mistakes


Top-Three Critical Mistakes Investors Make

By for Daily Gains Letter | Apr 1, 2013

010413_DL_zulfiqarWhen it comes to investing for the long run, investors must make sure that they make their investment decisions based on extensive analysis—not buy on rumors or “inside information.” Through thorough analysis, an investor can gain peace of mind.

If you avoid these following common investor mistakes when investing, you can be a better investor over the long run and can witness your portfolio grow.

 

Critical Mistake #1: Basing investment decisions on a company’s price-to-earning (P/E) ratio

The P/E ratio is very commonly quoted in the financial media, but at the end of the day, by itself, this ratio doesn’t really tell you much about a company’s health. In essence, the P/E ratio is simply derived by dividing the company’s price per share by its earnings per share—it’s nothing more than that.

Let me ask one question. Currently, Apple Inc (NASDAQ/AAPL) trades just above $450.00 with a forward P/E of 9.09. (Source: Yahoo! Finance, last accessed March 27, 2013.) How does the company’s financial health look?

In order to make a better investment decision, you must look at other measures as well. By doing this, you can know how the company is doing and how efficient it really is in its business.

 

Critical Mistake #2: Taking high risk to make higher returns

It is true that the more risk an investor takes, the higher their returns are going to be. But investors who are investing for the long run must realize that this can kill their portfolio in a very short period of time.

By using proper risk management and capital preservation techniques, you can grow your portfolio … Read More


Four Biases That Will Destroy Your Portfolio

By for Daily Gains Letter | Mar 19, 2013

190313_DL_zulfiqarFocus on the facts; investor, avoid these biases if you don’t want your portfolio to collapse.

 Behavioral finance has provided great insights on how investors make their decision and how it affects their returns. Sometimes, investors build up biases and make their decision according to these biases without considering the amount of risk they are taking or where they are investing.

These biases can destroy an investor’s portfolio if they are in the world of investing for the long term. Consider this: in March of 2009, when the key stock indices hit rock bottom, was it a good time to buy into equities, or go against them? Obviously, at the moment, it was very difficult to judge where the markets were headed; but those who made up their minds that key stock indices were only going down suffered severe losses. Since then, key stock indices, like the S&P 500, have more than doubled.

With that said, when it comes to investing, if investors avoid having a bias and focus on the facts, then they can reap the rewards—and their portfolio will be better off for it. There are many biases an investor might make, but the following four biases can make a major dent compared to the others.

Bias #1: False Consensus

When an investor makes false consensus, they believe that everyone in the market is thinking the same thing as them. For example, they look at a company and assume that other market participants are going to run towards it as well and buy it. There can be many reasons for false consensus, but in the end, investors must … Read More


Two Simple Strategies to Take Control of Your Portfolio

By for Daily Gains Letter | Mar 12, 2013

120313_DL_zulfiqarThe housing slump in 2007 and the financial crisis following it left the U.S. economy in sorrow. Millions of Americans lost their savings due to the stock market collapsing to the lowest levels experienced in a while. Key stock indices in the U.S. have shed more than half of their value, and some of the well-known companies went underwater.

Having said that, the key stock indices in the U.S. are back to where they were before the financial crisis began. But while the stock markets have recovered, many investors have lost courage to get back into the markets. What should investors do if they are unsure about investing in the stock market again?

The most important thing investors need to keep in mind is that fluctuations in the stock market are very normal—they shouldn’t discourage investors from investing and growing the value of their portfolios.

There have been many instances in the past when the key stock indices in the U.S. plummeted, leaving investors in misery.

Furthermore, investors need to know that investing in the stock market isn’t easy either. No matter how much information an investor might have about a stock, there is still some risk associated with it—sometimes, losses are imminent no matter how good the company may be. Losses can occur as a result of poor overall market conditions or many other factors.

However, if investors master two techniques—taking profits and learning from mistakes—they can minimize their losses, and at the end of the day, they can become better investors.

1. Taking Profits

As I mentioned earlier, key stock indices are trading at the same levels they … Read More