Are you a mistake-prone investor? Do you chase winners and sell after a market correction? If so, learn how to turn it around and get rich off other investors’ mistakes. Here are three investing tips that can help you make money by going against the grain.
Avoid Chasing Performance and Invest in Value Stocks Instead
Value stocks are those that trade for less than their intrinsic values. Value index funds include stocks with low prices relative to their earnings, sales, and book values. Momentum and growth stock investors, however, make the mistake of chasing performance and buying stocks as they reach new highs. These investors believe in the trend — a rising stock will continue to go up in price. The momentum investing mistake is that once the stock’s PE ratio gets too high, the stock becomes overvalued and eventually the stock price drops to fair value.
Avoid the “Hot Funds” or “Hot Tips”
A big investor mistake is piling into last year’s top funds. You might be tempted by those “top performing funds” lists, but investors who get in on these hot funds too late, tend to lose out. Winners in one year, tend to end up as losers in later years. However, you can also find opportunities to get rich by avoiding performance-chasing investor mistakes and opt for a market-matching index fund investing approach.
Buy When Other Investors Are Selling
Investors are driven by fear and greed. After a market decline, many investors get scared and make the mistake of selling. That’s a losing strategy as investors are locking in their losses. Then, after the markets rebound, these same folks will jump back in near the next market peak. This behavior translates into the average long-term investor earning just 3.79% and the S&P 500 earning close to 10.00%.
