Investor mistakes are more common than you might think. In general, investor mistakes occur when the investor or trader makes a miscalculation on a trade or a stock. For instance, an investor may ignore a major change in regulations that could affect a market sector or some companies. By ignoring this change, he or she makes a mistake that could subsequently erode the value of the stock. Another example of investor mistakes is when a stock reverses its course on bad news that is specific to the company, and the investor ignores the change and holds the stock, only to see a greater loss. These are only a couple examples of investor mistakes that you need to be aware of.
Apple Inc. (NASDAQ/AAPL) finally broke below $400.00 last Thursday, an occurrence that I recently discussed in Investment Contrarians. As I said, the short term will generate volatility for the stock, but I continue to believe there is still hope the company can turn around going forward.
The problem with a momentum company like Apple is that with its rapid rise in share price to over $700.00, there’s immense risk for investor mistakes to occur if the company does not consistently deliver. And I’m not talking about delivering just average results; momentum companies such as Apple have to deliver exceptional results to the market and please investors.
In the case of Apple, soft growth over the last several quarters has proved devastating to the stock and can cause investor mistakes.
After beating Thomson Financial earnings-per-share (EPS) estimates by 22.5% in the fiscal 2012 second quarter, Apple came back and offered up three straight dismal quarters in which the company fell short on earnings in two of the three quarters and barely beat in the most recent. Ignoring these falls inevitably led to investor mistakes, as demonstrated by the share price.
The same is said for the overall stock market. Traders gave investors strong gains in the first quarter, but that has not been the case in April, as global growth concerns are surfacing. The aftermath has been selling pressure and the greater likelihood of more selling down the road.
The two cases of Apple and the overall stock market demonstrate the need to be careful with momentum stocks to avoid potential investor mistakes.
The reality is that once the market euphoria … Read More
I think maybe it’s time to start putting your money in the piggy bank to avoid any major investor mistakes.
With the Dow and the S&P 500 at record highs, I’m trying to find reasons to want to buy in this market. However, I’m finding it difficult to even want to buy, as I still feel a stock market correction is on the way.
I’m sorry, but I can’t tell you when this will happen or by how much. All I know is that you need to be careful to avoid possible investor mistakes.
We have the first-quarter earnings season that started on Monday, and if you believe the early estimates, there will not be many happy traders and investors out there.
FactSet estimates earnings will contract by 0.7% in the first quarter, followed by an overly optimistic second half, predicting an explosive earnings rally of 10.1% and 15.6% for the third and fourth quarters, respectively. I’m not sure why FactSet is this giddy, but in my view, for these growth metrics to emerge, all of the stars will have to align.
I’m still not convinced corporate America is set for another growth spurt. The Federal Reserve knows this. Based on the recent non-farm payrolls reading showing a dismal 88,000 new jobs, I just can’t comprehend how the country is set to achieve revenue growth.
I may sound like a downer, but I consider myself more of a realist who wants to avoid investor mistakes.
And Main Street has also appeared to have forgotten the debt, while the government and Congress are still battling it out to come up with … Read More
The current crisis in Cyprus is a sad example of the mistakes that many professional and retail investors make when creating an investment strategy. This bailout plan is painful, but it is only a symptom of the problem, not the cause.
While much blame will be placed on finance ministers and international organizations, such as the International Monetary Fund (IMF), I believe the real blame, which stems from one of the most common and biggest investor mistakes, lies in the mismanagement of capital by the banks themselves—the mistake: not diversifying their assets.
Essentially, the current crisis stems from the fact that Cypriot banks are approximately 7.5-times larger than the entire country. These funds come in the form of deposits into the banks, which then need to create an investment strategy for this capital.
In most normal economies, the banks take in deposits and lend to businesses, supply mortgages for homeowners, and make various investments, both domestically and internationally. The biggest investor mistakes occur when there is a lack of diversification.
Because Cyprus is so tiny, these banks cannot properly diversify their investment strategy domestically. Instead of spreading the capital amongst various international investments, they essentially pumped a huge share of this capital into Greek bonds.
While hindsight is 20/20, and we now know how bad an investment strategy this was, even before the crisis, a proper risk evaluation should have told anyone that this is one of the biggest investor mistakes possible.
When the Greek bonds tanked and investors in these bonds had to take a haircut, the assets on the books of Cypriot banks declined substantially versus their liabilities, … Read More
The equities market continues to hover near its multi-year highs. There are still many Wall Street analysts who suggest that the bulls are in full control and will drive stocks higher.
Investor sentiment had been extremely bullish in each session since the start of the year, but a neutral rating was reported on February 21–22.
We are still seeing optimism on Wall Street from the bulls, with some market watchers calling for the Dow to crack 15,000, and move upward toward 20,000. Even the small-cap Russell 2000, which recently traded at a record high, is up nearly 10% this year. Based on an annualized rate, the Russell 2000 would advance over 60% this year, considering what has happened so far. I actually think some of the euphoria in the equities market is overblown.
While Wall Street and the media may still feel the equities market will continue to move higher, I believe there’s some real risk in the equities market that you should be aware of as shown in the chart below.
Chart courtesy of www.StockCharts.com
While I’m not calling for a stock market correction, I do see red flags out there that suggest some selling pressure may be on the horizon for the equities market.
Take a look at the Dow. The blue-chip index has failed on two occasions to hold above 14,000, so there appears to be some topping action, based on my technical analysis. The reality is that selling in blue chips would be a red flag in the equities market.
In the broader market, while the S&P 500 initially held at 1,500, the index did see … Read More
It’s amazing how resilient the equities market has been in spite of the concerns regarding the budgetary cuts and debt ceiling, the eurozone’s economic stalling and debt, and the earnings risk.
The current equities market has some bull legs and could advance higher, driven by more encouraging earnings and economic news; but we are also at a crux, with the S&P 500 at 1,500 and the Dow recently breaking to 14,000. The reality is that the advance we saw in January is not sustainable at the same pace, based on my technical analysis. Just think back to last year. After an equally strong start and January, stocks began tapering off in February after the first quarter.
On the one hand, I can see this market moving higher to new multi-year highs; but on the other hand, I feel that there’s chart risk, as evidenced by the potential third top on the S&P 500, which I recently discussed in this newsletter. The early success of the earnings season is already discounted into the market. The nice economic recovery in the U.S. is also discounted. We need more positive readings out of the financially challenged eurozone, as well as China.
So while the bias remains positive, the biggest investor mistakes may be to get too comfortable and let down your guard.
Just take a look at the CBOE Volatility Index (VIX) based on the S&P 500, which is known as the “fear factor.” The VIX reading on February 6 was 14, which is well below some of the high readings since 2004, as shown on the chart below. The low VIX reading … Read More