"NEVER AVERAGE A LOSS
This is the surest way to lose all or a great part of your capital. If you have
bought a stock and it shows you a loss, the trend is moving against you, and it is
very foolish to buy more, which will only increase your losses. The time to
increase buying is when the market is moving in your favor, and you have a
profit. If you intend to make speculation a profitable profession , you must
learn all the rules and apply all of them to determine the trend. Professional
men, such as lawyers, doctors, accountants and engineers spend years in
training and a large amount of money to learn how to succeed in their chosen
profession. You must spend time and money to learn the profession and
become a successful speculator or investor."
A Handy List
Some problems investors face are not isolated to the investing world. Let's look at the "seven deadly sins of investing" that often lead investors to blindly follow the herd:
1. Pride: This occurs when you are trying to save face by holding a bad investment instead of realizing your losses. Admit when you are wrong, cut your losses and sell your losers. At the same time, admit when you are right and keep the winners rather than trying to overtrade your way up.
2. Lust: Lust in investing makes you chase a company for its body (stock price) instead of its personality (fundamentals). Lust is a definite no-no and a cause of bubbles and crazes.
3. Avarice: This is the act of selling dependable investments and putting that money into higher-yield, higher-risk investments. This is a good way to lose your shirt—the world is cold enough without having to face it naked.
4. Wrath: This is something that always happens after a loss. You blame the companies, brokerages, brokers, advisors, CNBC, the paperboy—everyone but yourself and all because you didn't do your due diligence. Instead of losing your cool, realize that you now know what you have to do next time.
5. Gluttony: A complete lack of self-control or balance, gluttony causes you to put all your eggs in one basket, possibly an overhyped basket that doesn't deserve your eggs (Enron, anyone?). Remember balance and diversification are essential to a portfolio. Too much of anything is exactly that: TOO MUCH!
6. Sloth: You guessed it, this means being lazy and not doing your due diligence. On the flip side, a little sloth can be OK as long as it's in the context of portfolio activity. Passive investors can profit with less effort and risk than overactive investors.
7. Envy: Coveting the portfolios of successful investors and resenting them for it can eat you up. Rather than cursing successful investors, why not try to learn from them? There are worse people to emulate than Warren Buffett. Try reading a book or two: Knowledge rarely harms the holder.