There may be a vast difference in approach between value investors like Canadian billionaire Stephen Jarislowsky and growth investors like William J. O'Neil, but they do agree on one important rule: Keep your emotions in check.
In How to Make Money in Stocks, Mr. O'Neil devotes a chapter to mistakes investors make, and most come down to stupid moves made in panic, greed or just not doing your homework.
Some common mistakes:
Failing to cut your losses
Most people wait and hope rather than cut their losses when a share price starts falling, an emotional reaction that Mr. O'Neil attributes to pride. He advocates always selling once a stock falls 7 to 8 per cent below your purchase price.
Taking advice from so-called experts
Most tips and rumours aren't true, yet people make investing decisions because of them.
Knowing when to buy
Mr. O'Neil says that investors like to buy a stock when it's heading down in price, but that can be a great mistake. Often stocks on their way down just don't come back up again.
Knowing what to buy
Many investors prefer to buy large quantities of cheap stocks rather than smaller quantities of more expensive stocks - and are basing those decisions on price rather than quality. Also, Mr. O'Neil says investors pay too much attention to dividends (which he says can weaken a company) and P/E ratios (which he says often indicate that a company's past record is inferior) and not enough to earnings per share growth, which he says is a superior indicator.
Wanting to get rich quick
Investors who want to make a quick buck make far too many mistakes, like speculating too heavily in options and futures or not doing the research necessary to make solid picks.