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When it comes to buying stocks, here is the basic formula for success: Buy low and sell high. When was the last time you did that? In his book, Roth reveals the five dumb mistakes of (adult) investors, who tend to become so smart after they grow up they end up outsmarting themselves: 1. Forget that formula for market success. We almost always buy high and sell low. The market goes up, and we want in on that gold rush. So we buy. Then oops! Panic! The market is falling, so we sell. You just did it backwards. 2. We think strangers want to help us. Kids know not to talk to strangers, but we adults entrust our life savings and retirement future to strangers: bankers, stockbrokers, financial planners and the like. They help us so much they help themselves to our money. 3. We follow the herd. We're a bunch of investment lemmings, running after whatever is hot. Chances are, you'll get into that sizzling investment just as it's collapsing. 4. We watch too much financial television. While too little information is dangerous, so is too much. Those guys on TV are after ratings--hence, all the ranting and raving. Good advice for the average investor? Not so much. 5. We keep trying to disprove second grade arithmetic. We think 10-2 = 12. How? If the market earns 10 percent, and we pay those aforementioned strangers 2 percent of that return, we still think we'll somehow get 12 percent back. Ask a second grader: 10-2 = 8. --From the Editors at Netscape | |||||||||||||||||
Investing should be dull, dull, dull--so dull that if it makes you happy or excited, you're doing something wrong, according to financial planner Alan Roth, author of "How a Second Grader Beats Wall Street." And he knows of what he writes. That second grader is his son, Kevin, who was schooled by his dad in the basics of investing and then set loose.
