7 Areas New Investors Should Avoid

Posted on Wed 25th Mar, 2009 08:41:02 AM

So you’ve just started investing. You find that there’s a wealth of financial information everywhere. Like most investors, you have limited time for investing. So what should you NOT pay attention to?

1. Mergers and Acquisition: Unless you work at a large company and have plenty of stock options, we believe that attention paid to mergers and acquisitions could be spent on more productive pursuits (like walking your dog.) M&As of large companies usually catch plenty of eyeballs, but unless you have a financial interest in one of the companies concerned, knowing how X merged with Y won’t help your investments much. Here’s why:

A) Once the M&A is announced, there is little room for the stock to move. Buying or selling now hoping to profit would be too late and is a game for professionals.
B) M&As usually have some complicated intentions and that intention tends to stay within the corporate boardrooms. As an individual investor, it is usually hard to decipher the real reason behind an M&A. Even if you figured out the intention, it will still be hard to gauge the odds of the success of the strategy.

2. Tips: Listening to stock tips from another amateur investor is also something we strongly advise against. Tips sound like the mysterious way to financial heaven, but they’re usually not. Believing in tips is like believing you can get something for nothing. Better to spend your time on financial education and finding good investments on your own.

3. Economic news: The economy is hard if not impossible to predict. For an individual investor that has little time in the first place, reading about how housing starts are at 2 decade lows does not mean much. In fact it may actually be detrimental to investment. Had you bought stocks on news of Obama’s stimulus, you would be underwater by now, despite all the hype around it. Economic news tends to be bleak at market bottoms, however this does NOT mean you should buy when economic news is bad, as sometimes it does get worse.

4. TV shows: If you’re going to take mainstream financial shows seriously, you’d better not watch them. Once knowledge of a certain investment or event is widely publicized, do you think it gives you, the individual investor, any edge? That is not to say watching financial news is useless, but it does not really help your personal investments that much. And analysts are even worse. There are probably a dozen opinions for every security, each one making as much sense as the next. Which one are you gonna believe?

5. Highly priced seminars: Like diamonds, highly priced seminars are mostly overvalued. You pay thousands to get pitches for even more expensive products that seem great during the seminar but lose you money in the battlefield. It’s sort of like some countries that import state-of-the-art fighter planes from the US but can’t use them effectively due to the poor training of their pilots. Even if the seminars were selling something of value, without real trading experience and actually having a feel for the markets, you might not be able to use what you received from the seminar effectively. Then again, most highly priced seminars promise much and deliver little if not none.

6. Things you don’t understand: If you’ve got limited time and you’re reading this broker report from some highly reputed investment bank that has alpha, beta and sigmas in it and you can’t get what in the world it’s try to say, it’s probably unproductive to read it.

7. Rumors: These are one of the worst sources of investment ideas. Most rumors do not materialize and are usually comparable to chasing wild geese.

We consider the above seven to be a waste of your precious time. Generally anything mainstream can be covered quickly and most of it should be ignored. Investing is not buying clothes, you don’t necessarily have to pay attention to what’s in fashion.If you’re new to investing, it is probably better to spend more time on investment education.

This was a guest post by StockTradingToGo Community member Allen. Other recent posts from this author: