Thursday, March 6, 2008

* My Top 3 Investing Mistakes

Monday, The Dividend Guy Posted "My Top 3 Investing Mistakes and a Challenge to Other Bloggers" and tagged me to list mine. There are only few things in life that I consider myself an expert in, but when it comes to making investing mistakes I have earned several PhDs.


My Top 3 Investing Mistakes

1. Waiting Too Long Before Starting To Invest

Time is the investors most powerful tool. With time a multitude of mistakes can be overcome and fortunes can be built. If you do not begin investing until your 30's, 40's or 50's then there is less room for mistakes. I have always saved, but I wish that I began to aggressively invest when I was in my teens. As noted in my post "Passing the Torch - Part 1 of 2", you can start investing early, quit and still retire a multi-millionaire.

2. Focusing On Current Yield and Not Future Yield

As noted in "5 Lessons Learned About Investing ", I erroneously focused on current dividend yield when I first started dividend investing. I was fortunate enough to accidentally buy some good dividend stocks and hold them long enough to figure out the "secret" of dividend investing. Dividend investing is about future yield, not current yield. It is not necessarily starting with a high-yield investment, but ending up with a high-yield investment. This usually occurs by buying investments with a moderate yield, a history of growing dividends and letting time do its job (see #1 above).

3. Not Doing Your Homework Before Buying a Company

Quantitative analysis is easy - just download the numbers and crunch them. Qualitative analysis takes time and can't be automated. Getting to know a company is like getting to know a person - they are all unique and will likely require you doing something different to gain a full understanding of the company. As a former-growth investor, I lived by my stock screens to generate a buy list. I was buying a symbol to be flipped when it hit a predefined target. As noted in "Sometimes Things Aren't As They Appear" you may get a quantitative yes, but after some additional analysis effort it could turn out to be a qualitative no.


Tag You Are It…
To keep this going, I want to tag the following four bloggers (ok, so I couldn't stop at 3) with their choices for their top 3 investing mistakes. I also challenge them to tag 3 other bloggers to see how long we can keep this going.

1. Financial Jungle you are tagged
2. Dividend Money you are tagged
3. The Div Guy you are tagged
4. The Money Gardener you are tagged

Many thanks to The Dividend Guy, it was fun!


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