Do you enjoy "You might be a [insert something here] if ..." lists? Here are two that make me chuckle:
- You might be a caffeine addict if "you've just had your 20th cup of coffee within 20 minutes on a Friday afternoon at 4:00, just so 'the milk doesn't go bad over the weekend.'"
- You might be a graduate student if "you find yourself explaining to children that you are in '20th grade'" and "You start referring to stories like 'Snow White, et al.'"
Not all such lists are funny, though. Some are offensive, and some are just sad -- like "You might stink as an investor if ..." Here are some items for that list. See what you think of them and consider adding some of your own. I'll add my comments in italics.
- You bought shares of Oracle
(NASDAQ:ORCL)on March 1 for $16 each, excited by the company's plan to acquire performance management software provider Hyperion Solutions (NASDAQ:HYSL). But two weeks later, the stock was up only 4%. You're irritated. That's wrong-headed investing. You should be focusing on the long haul. Over just a few days or even a few months (and sometimes years), anything can happen.
- You and a buddy decided to invest in companies that specialize in linear, or analog, circuits, because you read a bullish piece on the industry in a financial magazine. He invested in Linear Technology
(NASDAQ:LLTC), and you invested in Maxim Integrated Products (NASDAQ:MXIM). He's down 3%, and you're down 9%. You feel like an idiot, thinking you picked the wrong company in the wrong industry. Again, wrong-headed thinking. You're looking at the short term again, for starters. And if you really don't know much about circuitry, you might want to exit the industry for that reason alone. But when it comes to looking at two strong peers in an industry, don't think that only one will win. Coca-Cola (NYSE:KO)and PepsiCo (NYSE:PEP)have been co-existing and profiting for many decades.
- Your domestic stock mutual fund gained 8% in value in 2006, and you were pleased as punch (especially because this beat most of your other investments). One year's performance isn't enough on which to base big conclusions, but know that in 2006, the S&P 500 gained about 15.6%, nearly twice what your fund did. So relatively speaking, your fund managers didn't really add much value in 2006. Always look at the big picture. If your funds aren't beating the S&P 500 overall, then you'd be better off in a simple S&P 500 index fund.
- You were thrilled that CarMax
(NYSE:KMX)split its stock 2-for-1 on March 27 because your 200 shares will become 400 shares. You're feeling rich. Well, you can pat yourself on the back for investing in this company because it has gained about 60% over the past year. Still, remember that stock splits are largely non-events. If you have 200 shares at $52 each before the split, that amounts to $10,400 worth. After the split, you'll have 400 shares at about $26 each, for a total of (drumroll, please) $10,400. Yawning? Good.
- You're beaming as you review your trading records and see that thanks to jumping in and out of Home Surgery Kits (ticker: OUCHH) repeatedly over the past year, your market timing has delivered a gain of $300. It's not a vast sum, but at least it's a gain. You must be doing something right. Not exactly: Let's say that you jumped in and out of the volatile stock, on average, three times per month (that's three buys and three sells). Total trades: 36. If each trade cost you $10, that amounts to $360 -- oops, you're in the red.
What to do
Did any or many of the above scenarios ring true for you? If so, your investing approach probably has a lot of room for improvement. (Remember that just about every investor can still keep learning and improving, though.)
If your portfolio is something you try not to look at too often because it depresses you so, take heart -- there's a fix for it that won't be too taxing. The simplest fix is just to move much or most of your long-term dollars into a broad-market index fund, such as one based on the S&P 500. Over the long haul, it will deliver returns that roughly match the market and will thereby top the majority of managed mutual funds, too!
To try doing even better than that, consider taking advantage of a free trial of our Champion Funds newsletter, the recommended funds of which are, on average, beating their benchmarks 29% to 16%. A free, no-obligation, 30-day trial will give you full access to all past issues so you can read about each recommendation in depth.
Longtime Fool contributor Selena Maranjian owns shares of Linear Technology, CarMax, Coca-Cola, and PepsiCo. Coke and CarMax are Motley Fool Inside Value recommendations. The Motley Fool is Fools writing for Fools.