From time to time, we look at the negative side of investing, on the theory that successful investors learn from mistakes. If you’re more aware of critical errors, you may be able to avoid them altogether or at least cut your losses. Today we examine three common mistakes that most investors will fall into at some time.

• Error #1: Trying to time the market. Our view is that nobody guesses right every time about the direction of the stock market. Some of the most prominent people in the investment world owe their notoriety to a series of correct guesses that could end at any time.
  
  That’s why market timing plays a small role—if any—in our stock trading advice. Instead, we focus on investment quality and portfolio management. We diversify across most, if not all, of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities), we aim to uncover investment quality at a modest price, and we downplay or shun the overhyped investments that you’ll find in the glare of the broker/media limelight.

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• Error #2: Failing to employ healthy skepticism toward transactions that may be made for your broker’s benefit, rather than yours. Many investors assume their broker is honest and has their best interests at heart; if this proves to be untrue, they will shop for better stock trading advice from a new broker. But, you should also look carefully for conflicts of interest that might warp the broker’s judgment.
  
  For instance, selling new issues or new structured products is substantially more profitable for the broker and the brokerage firm than carrying out transactions in existing securities. But it may not do you much good. Existing issues may be better for you.
  
  Sometimes, brokerage firms accommodate institutional clients by buying blocks of stock from them when it might otherwise take days or weeks for the institution to sell on the market at a favourable price. The brokerage firm then takes the stock into inventory and offers its brokers an extra fee or some other inducement to sell it to their own “retail” clients.
  
  Respectable brokers would only do this with respectable stocks, of course. But the opportunity to earn an extra fee (and curry favour with the boss) can lead some brokers to make recommendations that are more for the broker’s benefit than the client’s.
• Error #3: Letting a concept distract you from investment quality. It’s easy to fall in love with the premise/concept that makes a junior stock attractive, so much so that you ignore dismal financial developments. It’s not stock trading advice we can recommend. Yet it happens all the time with gold explorers, cancer-cure stocks, and the many change-the-world technology stocks whose technologies just don’t work.
  
  Buying a profitless solar power stock, for example, is not an effective way to protect the environment. To help the environment, invest wisely, then donate some profits to environmental causes.

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