Despite our best intentions, we human beings can often be suckers for a good sale. We'll spend $40 on a sweater we don't need, just so we can tell ourselves we saved $10 off its regular price -- yet we're still $40 poorer (and with slightly less closet space).
Stocks you don't need
That same principle can also apply to stock market investing, now more than ever. With the market down in the dumps, many stocks seem to be on sale. Here's a list that popped up when I ran a screen for large-cap companies with low price-to-earnings (P/E) ratios:
|
Company |
Recent P/E |
5-Year Average P/E |
|---|---|---|
|
Caterpillar |
11.8 |
16.6 |
|
Macy's |
11.7 |
15.6 |
|
Goldman Sachs |
7.7 |
11.7 |
|
Hewlett-Packard |
15.2 |
23.7 |
|
Nucor |
8.8 |
21.4 |
|
Boeing |
11.9 |
28.1 |
|
UnitedHealth |
10.1 |
20.4 |
Data: MSN.com, Morningstar.
At first glance, these investments sure look tantalizing, and they're hardly alone. Research long enough, and you'll likely find some you might want to invest in. But if you already own a bunch of stocks, do you really want to add a bunch more? Responsible investors need to keep up with all their holdings, reading their financial reports and keeping up with their latest developments. If you have 20 stocks already, can you afford the time commitment that another 10 will bring?
Furthermore, the more companies you add, the smaller proportionate stake you'll have in each. It's often best to concentrate your money on your best ideas, rather than spreading it thinly across many apparently promising prospects.
The next time you're drawn to stocks that seem to be on sale, ask yourself whether you really need some new holdings right now -- or whether you might want to sell some of your existing holdings to make room for new ones that might perform even better.
Further financially savvy Foolishness:
- Want to get ahead? Pay yourself first.
- Get-rich-quick plans are too good to be true.
