Many new investors have started investing, either through a traditional securities brokerage or with one of the new “app” based brokerage firms. No matter how long you’ve been an investor, or whichever firm you choose to buy your investment from, investor mistakes occur.
Mistakes generally fall into six categories. We’re going to break down what these categories are and how to avoid these mistakes.
Don’t just look at the short term
Short term performance is speculative. It’s long term performance that tells the complete story of an investment. While we may be tempted to invest in something that has had good short term performance, longer-term performance measures such as total return (capital gain plus dividends) are better indicators of an investment. While past performance is no guarantee of success, it is often all we have to go on.
Review the financials of the company you want to invest in and ask yourself these questions:
- Is there too much debt on its balance sheet?
- How does this company you are investing in make its money?
- Is this a company that makes a product that is becoming obsolete (think of the compact disc, the DVD, and before them VHS videotape, vinyl records, and 8 track tape players!)
Consider the risks
Concentrating your investment capital in too few areas can put you at