Mistake #4: Buying Stocks that Appear Cheap
This is a very common mistake, and those who commit it do so by comparing the current share price with the 52-week high of the stock. Many people using this gauge assume that a fallen share price represents a good buy. But the fact that a company's share price happened to be 30% higher last year will not help it earn more money this year. That's why it pays to analyze why a stock has fallen.
Deteriorating fundamentals, a CEO resignation and increased competition are all possible reasons for the lower stock price - but they are also provide good reasons to suspect that the stock might not increase anytime soon. A company may be worth less now for fundamental reasons. It is important always to have a critical eye since a low share price might be a false buy signal,
Lesson #4: Avoid buying stocks that simply look like a bargain. In many instances, there is a strong fundamental reason for a price decline. Do your homework and analyze a stock's outlook before you invest in it. You want to invest in companies which will experience sustained growth in the future.
Labels: Fundamental Analysis