here are some items when investing you should avoid, and a few common mistakes that are done...
1. Double/Triple leveraged etfs There are double and triple etfs that trade on the market that will give you 2X and 3X.
plenty wrong with these, tracking error, also the costs are very high, and if your investment goes sideways or down you lose money, even if it goes up a small amount over time you lose. avoid, if you do play these it is called a few days, or a week, maybe two...seen many people hold these for months/year and lose large amounts....avoid.
2. 2nd mortgage loans, large margin account to invest in the market.
often people will (especially in bull markets) (well always that I know of) want to get in, so they go from a small amount invested to all in, they do not start with a small amount on margin, and consider the downside.
in a perfect world the markets return 10% and they pocket the difference of the interest charged on the loan, that is what they are told.
if you use margin investing start off very slowly, and leave your house out of it....
3. Dollar cost averaging down (marrying stocks)
people will dollar cost down on money losing stocks. I know people that will lose 50% on a stock and will state how happy they are because now they can buy more. its on sale.
the problem is despite maybe bad news, and poor performance they will never sell, just consider buying more of this "great stock".
money should only be committed to stocks/investments that show a profit....remember that old rule, still true.
4. Dividend traps (stocks not rising divdends)
many people will buy a stock because it has a high dividend, however the stock that raises its dividend on a consistant basis is a better investment.
ie. a company that pays 3%, that raises its dividend over time is a better investment than a 5% dividend that is not raise over time.
so when buying dividend stocks, look for a company that is growing revenue, earnings, and dividends. rather than a company that has flat growth and dividends.
5. Wrap accounts (avoid)
wether it is fund of funds, a collection of mutual/hedge funds, or the wrap accounts (all the same) a collection of funds that for the most part
that charge higher fees the normal. They are designed to make the investment company and managers rich, and the investor poor, underperforming investments.
6. prepetual preferreds
these are popular in Canada, many have no expiry date, so think of them as long long term bonds.
they give investors .75-1.25% more interest than they can get on a preferred 5-10 years.
since I have been saying how bad these are or dangerouse they have risen 10%, if you are happy with the returns long term that is fine.
however does not take much in the way of interest rate hikes for these to drop quickly.
avoid, I know have heard recently interest rates will stay low and inflation is dead....however time has a way of changing predictions.
7. All Star ManagersCEOs
Horizons AlphaPro Gartman ETF (HAG)
is a great example issued on 3/26/2009 mer .75 with a 20% performance fee, not that this matters at this point.
so you buy an etf at the best possible time for resources, I mean buy the toronto index, or any number of resource stocks or indexes this is almost the bottom.
so for your $10 it is now worth 9.47 a few years later. you have not made anything on your investment, that is almost impossible considering the run resources have been on....
the same with CEOs, look at Cisco, sure the CEO is well known but what has he done with your investment over 10 years, have no worris all star under performing ceos, always pay themselves, and their poor managment teams well.
no you should not avoid all star managers or ceos, just 90% of them.
8. Paid research (Newsletters that get pay to endorse stocks) buy research on big cap stocks.
was reading an article well written and at the end it stated that the firm is paid for suggesting certain stocks. the only problem is was not told which stocks were paid for, and how much.
also large brokerage firms will keep a buy on underperforming large caps, ie. look at the buy reprots on Cisco, and see how many are buys compared to sell, over ten years. an analyst on wall street does not last long if they put a sell on a large blue chip stock.
so still read the research just do not care so much about the buy/sell/hold (which in most cases is a sell)
thanks
selkirk
1. Double/Triple leveraged etfs There are double and triple etfs that trade on the market that will give you 2X and 3X.
plenty wrong with these, tracking error, also the costs are very high, and if your investment goes sideways or down you lose money, even if it goes up a small amount over time you lose. avoid, if you do play these it is called a few days, or a week, maybe two...seen many people hold these for months/year and lose large amounts....avoid.
2. 2nd mortgage loans, large margin account to invest in the market.
often people will (especially in bull markets) (well always that I know of) want to get in, so they go from a small amount invested to all in, they do not start with a small amount on margin, and consider the downside.
in a perfect world the markets return 10% and they pocket the difference of the interest charged on the loan, that is what they are told.
if you use margin investing start off very slowly, and leave your house out of it....
3. Dollar cost averaging down (marrying stocks)
people will dollar cost down on money losing stocks. I know people that will lose 50% on a stock and will state how happy they are because now they can buy more. its on sale.
the problem is despite maybe bad news, and poor performance they will never sell, just consider buying more of this "great stock".
money should only be committed to stocks/investments that show a profit....remember that old rule, still true.
4. Dividend traps (stocks not rising divdends)
many people will buy a stock because it has a high dividend, however the stock that raises its dividend on a consistant basis is a better investment.
ie. a company that pays 3%, that raises its dividend over time is a better investment than a 5% dividend that is not raise over time.
so when buying dividend stocks, look for a company that is growing revenue, earnings, and dividends. rather than a company that has flat growth and dividends.
5. Wrap accounts (avoid)
wether it is fund of funds, a collection of mutual/hedge funds, or the wrap accounts (all the same) a collection of funds that for the most part
that charge higher fees the normal. They are designed to make the investment company and managers rich, and the investor poor, underperforming investments.
6. prepetual preferreds
these are popular in Canada, many have no expiry date, so think of them as long long term bonds.
they give investors .75-1.25% more interest than they can get on a preferred 5-10 years.
since I have been saying how bad these are or dangerouse they have risen 10%, if you are happy with the returns long term that is fine.
however does not take much in the way of interest rate hikes for these to drop quickly.
avoid, I know have heard recently interest rates will stay low and inflation is dead....however time has a way of changing predictions.
7. All Star ManagersCEOs
Horizons AlphaPro Gartman ETF (HAG)
is a great example issued on 3/26/2009 mer .75 with a 20% performance fee, not that this matters at this point.
so you buy an etf at the best possible time for resources, I mean buy the toronto index, or any number of resource stocks or indexes this is almost the bottom.
so for your $10 it is now worth 9.47 a few years later. you have not made anything on your investment, that is almost impossible considering the run resources have been on....
the same with CEOs, look at Cisco, sure the CEO is well known but what has he done with your investment over 10 years, have no worris all star under performing ceos, always pay themselves, and their poor managment teams well.
no you should not avoid all star managers or ceos, just 90% of them.
8. Paid research (Newsletters that get pay to endorse stocks) buy research on big cap stocks.
was reading an article well written and at the end it stated that the firm is paid for suggesting certain stocks. the only problem is was not told which stocks were paid for, and how much.
also large brokerage firms will keep a buy on underperforming large caps, ie. look at the buy reprots on Cisco, and see how many are buys compared to sell, over ten years. an analyst on wall street does not last long if they put a sell on a large blue chip stock.
so still read the research just do not care so much about the buy/sell/hold (which in most cases is a sell)
thanks
selkirk
