William O' Neal Top 18 Stock Mistakes

1. Most investors never get past the starting gate because they do
not use good selection criteria. They do not know what to look for to
find a successful stock. Therefore, they buy fourth-rate "nothing-towrite-
home-about" stocks that are riot acting particularly well in the
marketplace and are not real market leaders.

2. A good way to ensure miserable results is to buy on the way down
in price; a declining stock seems a real bargain because it's cheaper
than it was a few months earlier. For example, an acquaintance of mine
bought International Harvester at $19 in March 1981 because it was
down in price sharply and seemed a great bargain. This was his first
investment, and he made the classic tyro's mistake. He bought a stock
near its low for the year. As it turned out, the company was in serious
trouble and was headed, at the time, for possible bankruptcy

3. An even worse habit is to average down in your buying, rather
than up. If you buy a stock at $40 and then buy more at $30 and average
out your cost at $35, you are following up your losers and mistakes by
putting good money after bad. This amateur strategy can produce serious
losses and weigh you down with a few big losers.

4. The public loves to buy cheap stocks selling at low prices per
share. They incorrectly feel it's wiser to buy more shares of stock in
round lots of 100 or 1000 shares, and this makes them feel better, perhaps
more important. You would be better off buying 30 or 50 shares of
higher-priced, sounder companies. You must think in terms of the number
of dollars you are investing, not the number of shares you can buy.
By the best merchandise available, not the poorest. The appeal of a $2,
$5, or $10 stock seems irresistible. But most stocks selling for $10 or
lower are there because the companies have either been inferior in the
past or have had something wrong with them recently. Stocks are like
anything else. You can't buy the best quality at the cheapest price!
It usually costs more in commissions and markups to buy low-priced
stock, and your risk is greater, since cheap stocks can drop 15% to 20%
faster than most higher-priced stocks. Professionals and institutions will
not normally buy the $5 and $10 stocks, so you have a much poorergrade
following and support for these low-quality securities. As discussed
earlier, institutional sponsorship is one of the ingredients needed
to help propel a stock higher in price

5. First-time speculators want to make a killing in the market. They
want too much, too fast, without doing the necessary study and preparation
or acquiring the essential methods and skills. They are looking for
an easy way to make a quick buck without spending any time or effort
really learning what they are doing.
6. Mainstream America delights in buying on tips, rumors, stories,
and advisory service recommendations. In other words, they are willing
to risk their hard earned money on what someone else says, rather than
on knowing for sure what they are doing themselves. Most rumors are
false, and even if a tip is correct, the stock ironically will, in many cases,
go down in price.
7. Investors buy second-rate stocks because of dividends or low
price-earnings ratios. Dividends are not as important as earnings per
share; in fact the more a company pays in dividends, the weaker the
company may be because it may have to pay high interest rates to
replenish internally needed funds that were paid out in the form of dividends.
An investor can lose the amount of a dividend in one or two
days' fluctuation in the price of the stock. A low P/E, of course, is probably
low because the company's past record is inferior.


8. People buy company names they are familiar with, names they
know. Just because you used to work for General Motors doesn't makeGeneral Motors necessarily a good stock to buy. Many of the best investments
will be newer names you won't know very well but could and
should know if you would do a little studying and research

9. Most investors are not able to find good information and advice.
Many, if they had sound advice, would not recognize or follow it. The
average friend, stockbroker, or advisory service could be a source of losing
advice. It is always the exceedingly small minority of your friends,
brokers, or advisory services that are successful enough in the market
themselves to merit your consideration. Outstanding stockbrokers or
advisory services are no more frequent than are outstanding doctors,
lawyers, or baseball players. Only one out of nine baseball players that
sign professional contracts ever make it to the big leagues. And, of
course, the majority of ball players that graduate from college are not
even good enough to sign a professional contract.

to go into new high ground, pricewise. It just seems too high to them.
Personal feelings and opinions are far less accurate than markets.
11. The majority of unskilled investors stubbornly hold onto their
losses when the losses are small and reasonable. They could get out
cheaply, but being emotionally involved and human, they keep waiting
and hoping until their loss gets much bigger and costs them dearly.
12. In a similar vein, investors cash in small, easy-to-take profits and
hold their losers. This tactic is exactly the opposite of correct investment
procedure. Investors will sell a stock with a profit before they will
sell one with a loss.
13. Individual investors worry too much about taxes and commissions.
Your key objective should be to first make a net profit. Excessive
worrying about taxes usually leads to unsound investments in the hope
of achieving a tax shelter. At other times in the past, investors lost a
good profit by holding on too long, trying to get a long-term capital
gain. Some investors, even erroneously, convince themselves they can't
sell because of taxes—strong ego, weak judgment.
Commission costs of buying or selling stocks, especially through a discount
broker, are a relatively minor factor, compared to more important
aspects such as making the right decisions in the first place and taking
action when needed. One of the great advantages of owning stock over real
estate is the substantially lower commission and instant marketability and
liquidity. This enables you to protect yourself quickly at a low cost or to
take advantage of highly profitable new trends as they continually evolve

14. The multitude speculates in options too much because they think
it is a way to get rich quick. When they buy options, they incorrectly concentrate entirely in shorter-term, lower-priced options that involve
greater volatility and risk rather than in longer-term options. The limited
time period works against short-term option holders. Many options
speculators also write what is referred to as "naked options," which are
nothing but taking a great risk for a potentially small reward and, therefore,
a relatively unsound investment procedure.

15. Novice investors like to put price limits on their buy-and-sell
orders. They rarely place market orders. This procedure is poor
because the investor is quibbling for eighths and quarters of a point,
rather than emphasizing the more important and larger overall movement.
Limit orders eventually result in your completely missing the
market and not getting out of stocks that should be sold to avoid substantial
losses.

16. Some investors have trouble making decisions to buy or sell. In
other words, they vacillate and can't make up their minds. They are
unsure because they really don't know what they are doing. They do not
have a plan, a set of principles, or rules, to guide them and, therefore,
are uncertain of what they should be doing.
17. Most investors cannot look at stocks objectively. They are always
hoping and having favorites, and they rely on their hopes and personal
opinions rather than paying attention to the opinion of the marketplace,
which is more frequently right.
18. Investors are usually influenced by things that are not really crucial,
such as stock splits, increased dividends, news announcements, and
brokerage firm or advisory recommendations.
If you hunger to become a winning investor, read the above items
over very carefully several times and be totally honest with yourself.
How many of the habits mentioned above describe your investment
beliefs and practices? As Rockne would say, "These are the weaknesses
which you must systematically work on until you can change and build
them up into your strong points."
Poor principles and poor methods will yield poor results. Sound principles
and sound methods will, in time, create sound results.
My parting advice to you is: Have courage, be positive, and don't ever
give up. Great opportunities occur every year in America. Get yourself
prepared and go for it. You'll find that little acorns can grow into giant
oaks. Anything is possible with persistence and hard work. It can be done,
and your own determination to succeed is the most important element.