Investing can be complicated especially if you have no experience with the basics of personal finance.  Avoiding the following top 6 investing mistakes will help everyone from the new investor who is just learning to an experienced investor who needs a refresher, achieve success in the markets.

 

Decisions made only by emotion can bring disastrous results, just as decisions made only from a computer program can also pose a problem. Emotional decisions are often tainted with biases.  For example the most common emotional investing decisions I see is when people try to time the market.  When the market rises people's confidence increases and they want to invest more.  When the market declines investors like to pull money out and wait on the sidelines.  This activity promotes buying high and selling low.  We should take a page out of Warren Buffet's book and increase our buying when the market declines and investments are on sale.

 

Focusing too much on historical returns - investors often get caught by relying too much on historical returns and not giving enough importance to future expectations.  The future investment situation is likely to be different from time-aged averages.  Past averages may have little bearing on the current environment and therefore the actual returns you receive.

 

Putting all your eggs in one basket is not the best idea.Over time a diversified portfolio provides the best combination of reasonable returns with bearable volatility. There's no such thing as the perfect investment. All stocks carry risks. Funds that bundle stocks can reduce the risk, mitigating harsh downturns but muting spikes as well. Bonds can counterbalance stock losses, but over long periods bond returns trail the returns of the stock market.Researchers at fund company T. Rowe Price compared the returns of portfolios that varied from 100 percent bonds to 100 percent stocks with various combinations of stocks, bonds and cash. From 1985 through 2012, a portfolio of 60 percent stocks, 30 percent bonds and 10 percent cash would have returned 9.8 percent annualized (about 93 percent of the return of an all-stock portfolio, but with just 62 percent of the risk).

 

Too Much Attention Given to Financial Media is actually wasting your time.There is almost nothing on financial news shows that can help you achieve your goals. Turn them off. There are few newsletters that can provide you with anything of value. If anyone really had profitable stock tips, trading advice or a secret formula to make big bucks, would they blab it on TV or sell it to you for $49 per month?  I think they'd keep their mouth shut, make their millions and not have to sell a newsletter to make a living. Spend less time watching financial shows on TV and reading newsletters. Spend more time creating - and sticking to - your investment plan.

 

Not Reviewing Your Portfolio Regularly - Even the best portfolios can go off-target over time.  Investments need to be reviewed often.  It may make sense to sell losers for tax purposes or sell some of your winners to move money into your laggards (rebalancing) This disciplined approach to investing helps ensure that you're buying lower and selling higher, which certainly beats the buy-high-sell-low trap that snares many investors.

 

Impatience needs to be avoided since you require a great deal of patience when investing.  Making rash decisions, in any case, can be problematic. Most of us have been trained by society to expect "instant gratification." The truth is, life doesn't work that way and neither does investing. For example, there are numerous instances where an investment severely lagged for many years before it turned around and became a top performer. This is not at all unusual. Therefore, assuming you have chosen a quality investment, to maximize its return you need to be prepared to hold it through a complete cycle to allow the manager's strategy to play itself out. How long is a complete cycle? This can only be answered after the fact. It's the same with identifying the end of a recession. It's normally several months after the fact before we realize a recession has actually ended.

 

Investors who recognize and avoid these common mistakes give themselves a great advantage in meeting their investment goals. Obviously, there are additional mistakes. In fact, we could probably go on and on, but these are some of the more common errors investors make.  

PEER TO PEER LENDING

 

 

Alternative assets are a type of investment beyond the traditional stocks, bonds, mutual funds and cash.  They can include investing in things like racehorses, art, collectibles, commercial real estate, or private equity.  They are gaining in popularity as investors are nervous about a stock market correction, rising interest wreaking havoc on their bonds or they are tired on rates hovering around 1% on their savings accounts and CD's.

 

GEOPOLITICS AND INVESTING

 

2014 has been very unnerving when it comes to events around the world.  Every day, a new worrisome headline comes out somewhere around the world.  There are conflicts in the Ukraine, Iraq, Syria, Libya, and the Gaza strip.  There are fears of an Ebola outbreak in West Africa and an unstable volcano in Iceland.

 

The question that continually comes up is what investors should do.  Maybe we should turn to Warren Buffet for advice.

 

During the darkest days of the financial crisis in 2008, Warren Buffett wrote a brilliant op-ed for The New York Times, reminding us that bad things happen all of the time. Here's an excerpt:

 

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor's best friend. It lets you buy a slice of America's future at a marked-down price.

 

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

 

Buffett made a similar statement in his  1994 letter to Berkshire Hathaway shareholders:

 

We will continue to ignore political and economic forecasts, which are an expensive distraction for many investors and businessmen. Thirty years ago, no one could have foreseen the huge expansion of the Vietnam War, wage and price controls, two oil shocks, the resignation of a president, the dissolution of the Soviet Union, a one-day drop in the Dow of 508 points, or treasury bill yields fluctuating between 2.8% and 17.4%.

 

But, surprise - none of these blockbuster events made the slightest dent in Ben Graham's investment principles. Nor did they render unsound the negotiated purchases of fine businesses at sensible prices. Imagine the cost to us, then, if we had let a fear of unknowns cause us to defer or alter the deployment of capital. Indeed, we have usually made our best purchases when apprehensions about some macro event were at a peak. Fear is the foe of the faddist, but the friend of the fundamentalist.

 

Buffett is saying two things. First, the market will weather crises no matter how bad they are. Second, a good business offering attractive long term returns is always worth investing in.

WATERCOOLER

 

ALS Ice Bucket Challenge

I thought I would be able to escape it, but thanks to Lou Ricigliano I was nominated to take the challenge.  Here is the video of me dumping water on my head.

 

ALS Ice Bucket Challenge

 

 

Brain Teaser

You have 8 basketballs all the same size.  7 of the balls weigh the same, 1 is heavier.  You have a scale that you are allowed to use 2 times.  How can you find the ball with the heavier weight. Answer Below

 

How 'bout them Cowboys - They haven't made the playoffs since the 2009 season, yet the value of the franchise just keeps rising.  A recent Forbes article releasing the value of NFL teams has the value of the Cowboys franchise up 46% from last year to $3.2 Billion 

 

 

  

 

The King becomes Canadian 

Burger King joins the list of pharmaceutical companies who are denouncing their US citizenship and buying foreign companies.  When a company reincorporates abroad they are trying to pay less in taxes.  The nominal corporate tax rate in the U.S is nearly 40 percent - the highest across all 34 Organization for Economic Cooperation and Development (OECD) member countries.  Canada's, by comparison is just over 26 percent.

 

 

Brain Teaser Answer

Take 6 of the balls and weigh 3 on each side.  If they weigh the same you know that the one with the different weight is one of the two you didn't weigh.  You weigh those two and will find the one that is heavier. If there is a difference in weight between the 6 you take the 3 that weighed heavier.  Take two of the three balls and weigh one on each side.  If they weigh the same, the heavier one is the one you didn't weigh.