Page 436 - How to Make Money in Stocks Trilogy

306 BE SMART FROM THE START

improvements. Also, keep in mind that you can lose the amount of a divi-
dend in one or two days’ fluctuation in the price of the stock. As for P/E
ratios, a low P/E is probably low because the company’s past record is infe-
rior. Most stocks sell for what they’re worth at any particular time.
13. Wanting to make a quick and easy buck. Wanting too much, too
fast—without doing the necessary preparation, learning the soundest meth-
ods, or acquiring the essential skills and discipline—can be your downfall.
Chances are, you’ll jump into a stock too fast and then be too slow to cut
your losses when you are wrong.
14. Buying old names you’re familiar with. Just because you used to
work for General Motors doesn’t necessarily make it a good stock to buy.
Many of the best investments will be newer entrepreneurial names you
won’t know, but, with a little research, you could discover and profit from
before they become household names.
15. Not being able to recognize (and follow) good information
and advice. Friends, relatives, some brokers, and advisory services can all
be sources of bad advice. Only a small minority are successful enough them-
selves to merit your consideration. Outstanding stockbrokers or advisory
services are no more plentiful than outstanding doctors, lawyers, or ballplay-
ers. Only one out of nine baseball players who sign professional contracts
ever make it to the big leagues. Most of the ballplayers coming out of col-
lege simply are not even professional caliber. Many brokerage firms have
gone out of business because they couldn’t manage their own money wisely.
In the 2000 era, some used unbelievable leverage. You never want to make
excessive use of borrowed money. That will get you into trouble.
16. Cashing in small, easy-to-take profits while holding your
losers. In other words, doing exactly the opposite of what you should be
doing: cutting your losses short and giving your profits more time.
17. Worrying way too much about taxes and commissions. The
name of the game is to first make a net profit. Excessive worrying about
taxes usually leads to unsound investment decisions in the hope of achieving
a tax shelter. You can also fritter away a good profit by holding on too long in
an attempt to get a long-term capital gain. Some investors convince them-
selves they can’t sell because of taxes, but that’s ego trumping judgment.
The commissions associated with buying and selling stocks, especially
through an online broker, are minor compared with the money to be made
by making the right decisions in the first place and taking action when
needed. The fact that you pay relatively low commissions and you can get
out of your investment much faster are two of the biggest advantages of
owning stock over owning real estate. People can get over their head in real
estate and lose money when they overstep themselves. With instant liquid-