Mistake #2: Buying On Unfounded Tips
We think everyone makes this mistake at one point or another in their investing career. You may hear your relatives or friends talking about a stock that they heard will get bought out, have killer earnings or soon release a ground-breaking new product. Even if these things are true, they do not necessarily mean that the stock truly is "the next big thing" and you should run to the nearest phone to call your broker.
Other unfounded tips come from investment professionals on TV who often tout a specific stock as though it's a must-buy but really is nothing more than the flavor of the day. These stock tips often don't pan out and go straight down after you buy them. Remember, buying on media tips is often founded on nothing more than a speculative gamble.
Now this isn't to say that you should balk at every stock tip. If one really grabs your attention, the first thing to do is consider the source. The next thing is to do your own homework. Make sure you research, research and research so that you know what you are buying and why. Buying a tech stock with some proprietary technology should be based on whether it's the right investment for you, not solely on what some mutual fund manager said on TV.
Lesson #2: Next time you're tempted to buy a hot tip, don't do so until you've got all the facts and are comfortable with the company. Ideally, obtain a second opinion from other investors or unbiased financial advisors.
Labels: Fundamental Analysis