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The Biggest Mistakes Stock Investors Make

Sandy Chaikin

Sandy Chaikin, Individual Investor

Sandy Chaikin is Co-Founder and head of marketing and communications for Chaikin Analytics (www.ChaikinAnalytics.com), a ground-breaking mobile stock ... FULL BIO

The Biggest Mistakes Stock Investors Make

Despite the fact that the S&P 500 on average offers returns far better than keeping money in cash, many people are too afraid of making mistakes to invest in the stock market. I know, because I felt the same way before I started investing in stocks in 2012! However, as a successful stock investor who now consistently beats the S&P 500 and most money managers, I want to share some of the biggest mistakes investors tend to make - and how to easily avoid them.

Lack the Confidence to Get Started

This is a mistake I made early on. Before I started investing on my own, I engaged a money manager who invested my money in mutual funds. I didnt have the confidence to overrule his advice to hold and, as a result, lost 40% in the 2008 financial crisis. This was a wake-up call that I had to take control of my financial future. But it wasnt until I gained confidence using Chaikin Analytics to identify winning stocks that I realized I could make better returns myself!

Facts to consider:

- Women, especially, lack confidence - 72% dont feel confident making financial decisions on their own. (Fidelity)

- So, they put their trust in their spouse or a money manager or, hold too much cash. Almost two-thirds (63%) of all American savings and investments are held in cash, which actually loses 2% each year due to inflation. (Blackrock)

- Investing in stocks is still the best way to grow your portfolio, given its gained on average 11.1% a year for the last 30 years. (Dalbar Inc.)

Let Emotion Get in the Way

Despite the fact that the S&P 500 rose on average 11.1% per year over the last 30 years, the average mutual fund investor made only 3.8%. Why? People buy and sell on emotion. Warren Buffett, the famous American value investor and CEO of Berkshire Hathaway, says Investors should be fearful when others are greedy and greedy only when others are fearful. When investors sell on fear, it will drive a stock price down. Likewise, when they buy on greed,it will drive a stock price up in the short term. Basing your decisions on reliable information, instead of emotion, will pay off in the long run.

In order to prevent yourself from trading on emotion, its essential that you depend on a proven methodology that you trust. To quote another famous investor, quantitative analyst James OShaughnessy, Models beat human forecasters because they reliably and consistently apply the same criteria time after time - as opposed to human beings who are swayed by emotions and opinions. What I use to eliminate the emotion is the Chaikin Power Gauge rating model, which rates a stocks potential to out- or under-perform the market over the next 3-6 months. Its like a GPS for stocks. Having a tool like this, that does the research and analysis for you, can prevent you from making emotionally-driven investing mistakes.

Ignore Earnings Season

Publicly traded companies are required to release earnings reports four times a year. Stocks can be most volatile around these times; a surprisingly good earnings report can drive a stock price up, or vice versa if its a disappointment. Investors should pay close attention to these time periods and use them to their advantage to take incredible profits not often possible during the rest of the year. I know I have!

A few quick tips:

- Always be aware when stocks you own are reporting earnings

- Consider using the few days ahead of earnings reporting as a possible buying opportunity

- It can be a bad sign when a stock misses earnings expectations over and over again

Not Selling at the Right Time

Dont forget that the only way to lock in your profit on a stock is to sell. Its important to know when to sell, which can be one of the most difficult aspects of investing. An investors fear of losing is roughly twice as extreme as the satisfaction of earning that same amount of money, known as loss aversion. This behavior results in investors consistently selling winning investments too early, while holding onto losing investments in the hopes that they will come back. To avoid this mistake, I use theChaikin Power Gauge ratingto alert me to my stocks that turn neutral or bearish, so I know to sell before the price drops. You should also establish an exit strategy (for example, setting a stop-loss price), which can help you exit a position before taking a big loss.

By avoiding these common mistakes, investors can dramatically improve their portfolio results.

Attend one of my upcoming webinars to learn more the other biggest mistakes investors make, and how you can improve your profits by avoiding them.



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