Understanding Stocks

164 UNDERSTANDING STOCKS
It is worth losing a little money in the market today to protect yourself
from losing a fortune tomorrow.
If you lose more than 10 percent in the market, there are a few
things you can do. Instead of burying your head in the sand, take the
time to understand your mistakes. It’s not useful to make excuses and
act as if your stock losses are only paper losses that will be made up in
the future. In the market, everything doesn’t always work out in the
end. Accept the loss and make sure you don’t make the same mistake
again.
Next, closely review your investment strategy. You should study the
entire market environment and analyze each of the stocks you are holding.
If your investments don’t hold up based on technical and fundamental
analysis, you might want to make changes to your portfolio.
Mistake #7:You Listen to or Get Tips
from the Wrong People
If your eyes glaze over when you read about fundamental or technical
analysis, there is a simpler way to find stocks to buy—stock tips. The
beauty of tips is that you can make money without doing any work. If
this sounds too good to be true, it is.
In fact, one of the easiest ways to lose money in the market is by listening
to tips, especially if they come from well-meaning but uninformed
relatives or acquaintances. These people often become
cheerleaders for a stock, trying to convince you to buy it. Because it’s
hard to say no to easy money (especially when the tip comes from a
trusted source), there are some steps you can take to limit your risks.
First, you should never act on a tip before doing fundamental or
technical research. One look at a stock chart should give you a good
idea as to whether the stock is a loser. As I reported before, most people
spend more time researching a new television than a stock. Many
people wouldn’t think twice about spending $20,000 on a stock tip but
will spend a month researching a $200 television set. If you do receive
a “can’t lose” tip that is impossible to resist, buy in small quantities—
no more than 100 shares. If the tip turns out to be a dud (and it proba-