Tonight was a rebroadcast of the episode that originally aired Dec. 27, 2006, it is reposted below.
“A handful of extremely important rules are needed to beat the market and to be successful people need to unlearn some of the worst, most harmful myths they believe about stocks and investing,” Jim told us at the start of his show today. As a money manager he made every mistake in his new book. We were told that the single worst and most common mistake people make is buying and holding stocks. Buy and hold isn’t a strategy but an ideology which allows market players to be lazy, and it will lose you money. Doing homework after the buy not buying and holding will make you money. 30 or 40 years ago buy and hold was a winning option with high taxes and commission. It is important to know when to buy and sell, and doing homework is the only way to know when. A second mistake was pointed out when investors harbor regrets. It was called unproductive and bad to dwell on missed opportunities, yet people still do it. The time you waste worrying about these misses, is time you are not making money. Instead of dwelling on the past, think about the future. The next rule is “tips are for waiters.” People love “hot stock tips” but there is no such thing as a tip so never take them seriously. The only way a tipster could know for sure about a stock is if they were an insider and if they are an insider and tip you off they are breaking the law. An investigation from the SEC is pure hell even if you haven’t done wrong. Tips do not exist, and Jim says “if you get a tip, it is either illegal, incorrect or straight up manipulative.” In theory you want to be diversified but often when you pick stocks you do not think about being diversified because it is “boring, conservative and totally unsexy.” While no fun, diversification is “essential” for those serious about investing. Throwing money into one hot stock can ruin you. Lastly people want to be good investors, but they need to refrain from getting too arrogant. The rule here is “arrogance is a sin.” The most arrogant thing is to place your whole position in a stock at once, as this is something you should never do. Buy incrementally, and be patient for good entry points to build position.