I recently ran an article reviewing a list of 10 big investing mistakes that was published by Investor's Business Daily (a newspaper for investors that you can try for free). I agreed with some of the alleged mistakes, but took issue with some others. After my piece ran, I heard from a bunch of readers -- and also from IBD. It wanted to respond.

Since it's critical to avoid as many investing mistakes as possible and since IBD's thinking may be instructive, I decided to devote this article to furthering the discussion. Below I present each mistake, along with snippets of what I originally said and snippets of its responses. (You can read the full response on our discussion board.) Don't let this discussion end here, though -- please consider yourself invited to chime in on the board with your thoughts. Without further ado, the mistakes:

1. Avoiding stocks with high P/E ratios. Stocks with the best potential often sell at a premium.

I agreed with this, but warned that sometimes a high P/E is attached to the stock of a company that isn't a compelling investment -- it's just gotten way ahead of itself in price and isn't likely to reward investors any time soon.

(For some recommended fast-growing companies, look into our new Motley Fool Rule Breakers newsletter, which you can also try for free.) But keep in mind that sometimes, a little research and thinking can help you sort out which camp a high-P/E candidate belongs to.

IBD noted that, "Our stock market studies from 1952 to present show that P/E ratios were not a relevant factor in price movement. From 1953 through 1985 the average P/E ratio for the best-performing stocks at their early emerging stage was 20, which value investors might consider high. While advancing, the biggest winners expanded their P/Es by 125% to about 45. During the 1990-95 period, the real leaders began with an average P-E of 36 and expanded into the 80s. Stocks with 'high' P/E ratios share a common trait: their performance shows there's plenty of bullishness about the company's future prospects."

2 . Not cutting losses short. Small losses can easily be overcome. It's the big losses that can do severe damage.

I agreed with this, but added that it's also often a mistake to sell a holding just because it's fallen a bit, or even a lot, as stocks rarely go up (or down) in a straight line.

IBD added some advice, recommending a "7% sell rule" (i.e., selling if a holding drops by 7%): "You must have a realistic plan of selling and taking profits on the way up, while a stock is still advancing, and selling and cutting losses very short when a stock starts off poorly and goes against you. Specifically: you should consider taking most profits at 20% to 25% and cutting all losses at 7% or 8%. The sell-price profit target, in other words, is roughly three times the loss-recognition point. This way, you can be right on only 30% of your stock purchases and wrong on 70% and still not get into serious trouble."

3 . Buying stocks in a down market. Three out of four stocks will follow the market's trend.

I took issue with this one, opining that, "when the market is down is often a good time to buy, in my opinion."

IBD countered: "This is perhaps one of the biggest mistakes investors tend to make. Often, they will have the opinion that with stocks declining in a bad market, it's a great time to scoop up bargains. It's very hard to make money in a stock when institutional investors are selling that same stock. IBD's factual analysis of every market cycle going back for decades shows there is no room for opinion in this area: 3 out of 4 stocks follow the market's direction. Period. Why take that chance?"

My answer would be that if an otherwise healthy stock is dropping to attractive levels due to an overall market drop, it might still be worth buying, as eventually the market -- and the stock -- will recover.

IBD continued: "Does this mean you should sit out a bad market and do nothing? Absolutely not! A down market is the perfect time not to look for bargains, but to look for emerging leaders: the next Microsofts (NASDAQ:MSFT), Ciscos (NASDAQ:CSCO), Home Depots (NYSE:HD) and others that are going to skyrocket when the market turns."

4 . Averaging down. Throwing good money after bad is a sure way to stale returns.

I'm on the fence about this one. The IBD folks reiterated their objection to averaging down: "This is exactly why so many people lost money in the 2000-2003 market. Just ask anyone who scooped up shares of former leaders like Lucent (NYSE:LU), Enron, WorldCom, AOL [now Time Warner (NYSE:TWX)] and others with glee only to see them hit rock bottom as the market sold off. It is very common for investors to look at a falling stock and assume its drop is temporary. Look at the glowing fundamentals, they'll say. Look at the popularity of its products. But history shows that stocks falling in price on increasingly higher volume almost always continue to fall in price. If you see a stock dropping in above-average volume for consecutive days in a row, this means the big institutions are dumping shares: a bad sign." They offered the example of Amazon.com (NASDAQ:AMZN) -- read their thoughts in their entire response.

5. Buying stocks because they pay a dividend. Why are so many dividend-paying stocks such laggard price performers?

I advocated considering dividend-paying stocks, noting that sometimes they offer both price appreciation and dividend income. I also took the opportunity to plug our Motley Fool Income Investor newsletter, which has recommended more than 25 investments in a little over a year, and only a small handful (four, last time I counted) feature negative total returns. (Try it for free.)

IBD added: "There is no comparison between the profit you make from a dividend and the profit you can make in a winning growth stock that has the potential to deliver a 100%, 500% or even 1,000% return, or more. High-performing growth companies will typically not issue dividends. Rather, they will reinvest their capital into research and development (R&D). The bottom line is that smart investors don't look for dividends from stocks, they look for winning stocks that will generate high returns."

6. Buying on rumors, tips, opinions. There was a lot of bad advice given when the bear market began in March 2000.

We agree on this completely.

7. Avoiding stocks at new highs. When a stock hits a 52-week high, there's usually a bullish story behind the move.

I agreed, noting that all great stock performers have to hit new highs eventually. I recommended, though, trying to determine whether the stock is still a good value at the current, "high" price. For more guidance, I pointed readers to Philip Durrell's article, Hunting for Value.

IBD explained: "Stocks making new highs tend to go higher. That's why, rather than 'buy low and sell high,' you should 'buy high and sell higher.' Now, does that mean you should only buy stocks that hit a 52-week high? Absolutely not! Instead, this is one ingredient in many you want in place before buying a stock.... A stock moving down in price is a losing proposition. Growth investing calls for buying into strength and selling into weakness...."

8. Staying married to a stock. Microsoft,EMC Corp. (NYSE:EMC), andCiscoled the '90s bull market. but they're not leaders anymore.

I agreed here. IBD added: "While you can get away with holding onto stocks through a mild bear market, doing the same thing through a severe downtrend can be devastating. Three-fourths of all stocks fall during a major downtrend but not all recover. For instance, 72% of past leaders in the recent bear market did not recover to their old highs." [I note: so far.]

9. Over-diversifying the portfolio. Owning too many stocks can dilute your returns.

We all agreed on this one. Again, I recommend Whitney Tilson's article, Focus Investing. Tom Gardner discussed why companies themselves should focus in Focus! Focus! Focus!

10. Buying low-priced stocks. Cheap stocks lack a key trait of past market winners -- institutional sponsorship.

I generally agreed with this, but noted that some low-priced stocks can turn out to be very good performers. IBD explained: "Institutional investors account for about 70% of the trading volume each day on the exchanges, so it's a good idea to fish in the same pond they fish. Stocks priced at $1, $2, or $3 a share are not on the radar screens of institutional investors."

My response here is that you can do very well investing in some small-cap stocks that have yet to grow big enough to attract the attention of institutions. Indeed, getting in before the big players do can be very lucrative -- with the right companies, of course. This is one of Tom Gardner's goals in his Hidden Gems newsletter (which you can try for free).

More mistakes
Reading and thinking about investing mistakes is a great way to improve your investing. Learn where others went wrong, and you can try to avoid their blunders. Study where you yourself went wrong, and why, and you may be able to tweak and improve your own investing approach.

I wrote about my own blunders a while ago, in Profiting From My Mistakes.

I invite you to share your own blunders or advice on our My Dumbest Investment board. Or just set me straight on our Fool News & Commentary board. At least drop in to see what others are saying -- we've got a free trial available of our entire discussion board community.

Selena Maranjian specializes in making mistakes. She owns shares of Home Depot, Time Warner, Amazon.com, and Microsoft. For more about Selena, view her bio and her profile. You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.