As part of our investment advice, we regularly look at common mistakes made by many investors—so that you know how to avoid them. Today we discuss three errors that can arise from what look like seductive investment ideas.

1. An unrealistic investment strategy: Some investors, especially newcomers, believe they can buy a few hot stocks (or options or futures), and double or triple their money in a few years. After that, they plan to settle into a low-risk investing style that may only return an average 10% to 12% yearly. But if you could make 200% or 300% in a few years, why would you quit? If you could do it once, you should be able to do even better as you gain experience.
   
   Of course, if you don’t think you can keep it up indefinitely, you should also ask yourself whether you can really pull it off the first time. Our investment advice is that you should take the approach that will work for you more-or-less indefinitely. You’ll want to be sure it suits your circumstances and temperament, that it won’t take up too much of your time, and that it doesn’t require luck or extraordinary circumstances for success.

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2. Buying new issues: We advise staying out of virtually all new issues. They come to market when it’s a good time for the company or its insiders to sell, and that may not necessarily be – and often isn’t – a good time for you to buy.
   
   New stock issues start out with a big marketing push by the firm that sponsors them. When the initial hype fades, hidden risks may begin to appear. This can spur deep price declines in the new issue that go on for years.
   
   Our investment advice is that you should avoid new issues until they’ve survived at least one recession. By then, hidden risk is out in the open.
3. Buying too many “stocks that everybody likes”: When building your stock portfolio, it’s crucial to follow our advice on downplaying stocks that seem to be near-universally recommended by brokers and are getting a lot of favourable media coverage.
   
   Some stocks like these remain popular for years, if not decades. They can be profitable during those periods. But if you invest too much of your portfolio in stocks like these, you’ll often buy in just as they reach their peak.
   
   When these stocks fall out of favour, the drop in your returns can be breathtaking. And it can take years for such stocks to recover.

You can get our latest risk-cutting strategies and clear, plain-English investment advice on stocks in The Successful Investor. The latest issue has our analysis and clear buy-hold-sell advice on 20 stocks. What’s more, you can get one month free when you subscribe today. Click here to learn how.