Many of life's lessons that you learn in one realm can help you in other realms, too. Although good shopping tips can keep you from overspending, you can also apply them to your investing endeavors.
For starters, when investing, you may have a big list of companies you'd like to buy, along with plans to add two or three new holdings to your portfolio. Resisting the temptation to add smaller chunks of five or six companies can be worthwhile, as it will prevent you from spreading yourself too thin and taking money away from your best ideas.
Sale cautions
When stocks are on sale, as so many are in the terrific buying opportunity facing us right now, buying can be the right thing to do. But just because a stock is down 50% or even 70% in the past year doesn't make it a bargain. Check out these fallen stocks:
|
Company |
CAPS Rating (out of five stars) |
One-Year Return |
|---|---|---|
|
Ingersoll-Rand (NYSE:IR) |
***** |
(64%) |
|
ICICI Bank (NYSE:IBN) |
**** |
(77%) |
|
Southern Copper (NYSE:PCU) |
***** |
(62%) |
|
Weatherford International (NYSE:WFT) |
***** |
(70%) |
|
Daimler (NYSE:DAI) |
* |
(73%) |
|
Macy's (NYSE:M) |
* |
(70%) |
|
Salesforce.com (NYSE:CRM) |
* |
(46%) |
Data: Yahoo! Finance and Motley Fool CAPS.
In many ways, these stocks don't belong in the same boat. Those among our Motley Fool CAPS community who've rated Ingersoll-Rand are bullish, noting that the industrial manufacturer has a solid history of performance despite its recent troubles. Southern Copper is credited with robust profit margins and manageable debt amid a tough copper market.
Meanwhile, Daimler is in the very troubled auto industry, which is being whacked by plunging demand in our rocky economy. Macy's is suffering, along with many retailers, and is also rather debt-heavy. Clearly, this group is all on sale, but they're probably not all bargains.
Need vs. want
Asset allocation helps keep investors from straying off their shopping lists and making impulse buys. Imagine that you want your portfolio to be invested 20% in small caps, 20% in foreign companies, 40% in large caps, and so on. Perhaps you're also being aggressive with 5% to 10% of your money, investing in some promising Rule Breaker stocks.
But if, while researching Rule Breaker companies, you find yourself about to plunk a lot of money into them, enough to represent 20% of your portfolio, step back and think about it. Remember your asset allocation goals. Remember why you were only allocating a small chunk of your money to Rule Breakers, which can be rather volatile.
So don't get carried away. Instead, consider all your contenders and assign the predetermined portion of your portfolio to your best ideas, the most promising stocks, the Rule Breakers in which you have the most confidence.
Don't make friends
Remember that pushy salesperson at the mall? Aggressive brokers may try to convince you to buy a stock. Remember, though, that such cold calls aren't always made by people with your best interests at heart. Many times, the caller will receive a commission if you buy.
The bottom line is that when it comes to making your stock purchases (and sales), you need to focus. Don't get distracted from the prize -- a prosperous nest egg that will support you throughout your life.
