Rules of Thumb for InvestorsRules of Thumb for InvestorsRules of Thumb for InvestorsRules of Thumb for Investors
I was deleting some old files from my computer this morning and found anold article previously written by Mark SellersMark SellersMark SellersMark Sellers, a stock strategist atMorningstarMorningstarMorningstarMorningstar. In it, he provides rules of thumbrules of thumbrules of thumbrules of thumb that all investors shouldknow:1. When someone says, "Things are different this time," they're tryingto sell you something.2. Don't invest in what you don't understand. If you do, you'll eventuallyget burned.3. When a company delays a financial filing for any reason, avoid thestock.4. For each 1% rise in the stock market, an investor's estimate of hisown IQ goes up a point. For each 1% decline in the market, an investor'sestimate of his fund manager's IQ goes down a point.5. Investors are risk-averse. The pain of losing $1 is greater than thepleasure of making $1.6. Nearly all investors are too bullish. We love being right, we lovemaking money, and we get to do more of both when stocks are going up.7. The financial media, too, are predisposed to being wildly bullish -television ratings and magazine subscriptions are far higher during a bullmarket than a bear market. Optimism sells; pessimism doesn't.8. Even a stopped clock is right twice a day; perma-bears and perma-bullsare stopped clocks.9. When you read an interview with a mutual fund manager, don't rush outand buy the stocks he or she recommends. Even the best portfolio managersare wrong on one third of their picks.10. If a company's CEO has a Ph.D., avoid the stock. Often, the CEO istoo brilliant for his own good and misses the forest for the trees.11. Stay away from any company with allegations of accounting misdeeds.There's rarely just one cockroach.12. When a company beats earnings expectations but misses revenueexpectations, tread carefully.