Thursday, April 26, 2012

Investor Tip to Remember #1

This is the first of a series of investmenrt tips for you to remember throughout your investment career.

Beware saying "It is only ..."

You will often hear this phrase followed by a sum of money. "It is only a penny per day." The person telling you this wants to convince you that something costs you so little that you'd be a fool to refuse to buy-in.

So in the example one penny per day is $3.65 per year. In an average year. OK still not a lot but you get the drift, it still builds to something substantial.

A bank salesman once told me that an investment would "Cost ONLY 5% per month." I could easily make that up in the stock market, it was rising and "You'll Earn 10% easily at current investment rates." He told me that in September 2007. The week before the slide in the stock market. Of course he could not forecast the crash of 2007-8, what he could forecast was HIS commission on my initial $15,000 investment. A nice little earner for him.

You will also tell yourself "It's ONLY ..." whatever as you look at stock prices. Penny stocks look like a bargain, the are only $1.30 that is much more affordable than Apple Inc at $600. I could buy hundreds of those penny stocks compared to one Apple (AAPL) stock. But realistically, Apple deserves to be higher and is cheaper than that penny stock. Apple has global impact that penny stock may be little known outside one corner of Noname City, Peoples Republic of Nowhere. But because of the theory of, "It is only ..." you but 500 shares and see it disappear over the next few months.

You will tell yourself trading charges "Cost only $9.99" then order hundreds of different trades, seeing various stocks rise and gove you a profit of $10, you will then rarely say "My profit is only ..."

See "It is only ..." as your greatest investing enemy. It will become a red flag to warn you of possibly poor decision making or someone trying to convince you to make a mistake to their advantage.

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