Learn Investing Secrets

Mr. Kimmel is a private money manager and the author of 'Magnet Investing, build a portfolio and pick winning stocks using your home computer'.

1. Lacking an investment plan a/k/a/ “Don't take a trip without packing the map”. A pre-planned ornament posting generates positive results and eliminates emotional panic selling.

2. shopping irregular stocks a/k/a “Road crews erect "Dead End" signs for a reason”. Most stocks with low share prices also come to at the undermost for a reason. There must be institutional interest to influence price, and many won't even glance at stocks $8 or $10.

3. Purchasing story stocks a/k/a “A good fable lulls a foster child to sleep”. Don't get taken by obsessional “story” stocks. The plots include a cure for cancer, a big oil strike or a revolutionary invention. Such promising stories rarely prove true. If the “story” materializes, the rank will still be a buy.

4. Selling your winners a/k/a “You gotta know when to hold ‘em’”. Don't sell your winners. These companies get in outstanding management, product and cash flow, creating steady growth for years. Holding these companies for the long run will poise for other investing mistakes. In fact, one or two big winners can create real wealth.

5. Holding onto a peaked stock a/k/a “Trees don't reach to the heavens, and companies don't continue growth beside reason”. Top companies peak for reasons such as penitently of top management or competition. Systematic pruning will help you make way for a rotting, unhealthy investment.

6. Under diversification a/k/a “Ideas are good, but a mind full of them is better”. Resist the urge to rely on a few stocks that you know. Lack of portfolio diversification leads to erratic and volatile returns, and owning several companies in the same industry also isn't diversification. The best investment results happen by investing in leading companies cross-grained various industries.

7. Over diversification a/k/a “A portfolio stretched like an old T-shirt won't help an investor advance from their insight”. You don't create diversification by spreading yourself too thin. nonetheless a mind full of ideas is good, ideas acted upon on a whim waste good thoughts.

8. Over trading a/k/a “Replanting a garden every week won't produce high-quality tomatoes”. Don't follow market “noise” and recoil from sector to sector or theme to theme. This prevents investors from enjoying the rewards of a long-term winner. Give stocks enough time to mature and compound.

9. Too much margin a/k/a “Living on borrowed time brings a rush of excitement, but it’s a quick trip when time expires”. Don't underestimate the damage margin can create. The relatively low cost and ease of obtaining leverage takes investors down a dangerous path. When a portfolio on margin declines rapidly, it can get the idea even experienced investors off guard.

10. Too many options a/k/a “In life there’s uninterruptedly options, (but timing makes the difference”). When you buy options, you must be right and use impeccable timing. Options consent to an investor to use leverage and control more shares but there are relatively high spreads involved in trading them. Many times investors lose money on their transaction even below they followed correct assumptions.

Mr. Kimmel is a private money manager and the set afloat of “Magnet Investing, devise a portfolio and pick winning stocks using your home computer”. His methodology was the subject of a Forbes Magazine chapter (June, 2004).

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