A lease option agreement can be a great way to finance the purchase of an investment property, assuming you’re working with a seller who deals aboveboard, and you have a great plan in place for obtaining cash or alternative financing by the time your option to buy the property rolls around.

So how does a lease option work? The monthly payment consists of rent plus some additional money that’s applied to the purchase price. In other words, if the going rate for rent on the property is $1,000 per month, you may have a monthly payment of, say, $1,500 with the extra $500 being added to your down payment. This ensures that you’re building equity in the property during the lease part of the agreement, and it provides the seller/lender with some security in the event that you back out of the deal.

Make sure that the lease option agreement is very specific regarding the application of payments and terms of exercising your option. Otherwise, you may lose a lot of money in rent that you assumed was being applied to the purchase price or lose your option to buy on some minor technicality. Have a qualified real estate attorney look over the agreement before you sign it, and make sure you understand it completely.

Stocks and bonds complement each other like peanut butter and jelly. Bonds are the peanut butter that can keep your jelly from dripping to the floor. They are the life rafts that can keep your portfolio afloat when the investment seas get choppy. Yes, bonds are also very handy as a source of steady income, but, contrary to popular myth, that should not be their major role in most portfolios.

Bonds are the sweethearts that may have saved your grandparents from selling apples on the street during the hungry 1930s. They are the babies that may have saved your 401(k) from devastation during the three growly bear-market years on Wall Street that started this century. Bonds belong in nearly every portfolio.

Almost all bonds these days are issued with life spans (maturities) of up to 30 years. Few people are interested in loaning their money for longer than that, and people young enough to think more than 30 years ahead rarely have enough money to lend. In the parlance of bond people, any bond with a maturity of less than five years is called a short bond. Bonds with maturities of 5 to 12 years are called intermediate bonds. Bonds with maturities of 12 years or more are called long bonds.

In general, the longer the maturity, the greater the interest rate paid. That’s because bond buyers generally demand more compensation the longer they agree to tie up their money. At the same time, bond issuers are willing to fork over more interest in return for the privilege of holding onto your money longer. It’s exactly the same theory and practice with bank CDs: Typically the two year CD pays more than the one-year CD, which pays more than the six month CD. The difference between the rates you can get on short bonds versus intermediate bonds versus long bonds is known as the yield curve. Yield simply refers to the annual interest rate.

Individual bonds offer investors the opportunity to really fine-tune a fixed income portfolio. With individual bonds, you can choose exactly what you want in terms of bond quality, maturity, and taxability. For larger investors investing in individual bonds may also be more economical than investing in a bond fund. That’s especially true for those investors up on the latest advances in bond buying and selling.

On the other hand, I’m a big advocate of bond funds — both bond mutual funds and exchange traded funds. Mutual funds and exchange-traded funds both represent baskets of securities (usually stocks or bonds, or both) and allow for instant and easy portfolio diversification.

Benjamin Graham’s arrival on Wall Street in that summer of 1914 was not much more than a chance encounter. There were no telltales that Graham would live in that world for the next four decades, synthesize a dominant theory of value investing, and in the process create a class of thousands of superinvestors like himself.

Among the chief disciples is one-time student and employee Warren Buffett, who graces Graham with the ultimate accolade. Graham has been dead for more than three decades now, but there are still uncanny touches of his style in the discipline that has made Buffett and dozens of other disciples very rich men.

What did Graham so lastingly teach this school of brilliant portfolio managers? The simple hardheaded principle that is at the heart of value investing: the need to cut through market prices to reality. When you buy a stock, you are not buying a piece of paper; you’re buying part of a business.

There is often a huge spread between the “intrinsic value” of the business and the price that a frequently manic stock market is putting on the paper. Buy a stock significantly above intrinsic value and you court a loss. Buy below intrinsic value and you have a good chance of making money over the long haul, with little risk of taking a permanent hit on your capital. The basic bet is that market value and intrinsic value will ultimately converge.

In one of a number of lead articles he wrote for Forbes, Graham thought of his strategy as “buying dollar bills for 50¢.” It was a strategy that enabled him to survive the bad years of the 1929 crash while others were sinking and it brought him returns of 20 percent or more over many good years. In his last years, Ben Graham distilled six decades of experience into ten criteria that would help the intelligent investor pick value stocks from the chaff of the market.

1. An earnings-to-price yield of twice the triple-A bond yield. The earnings yield is the reciprocal of the price earnings ratio.
2. A price/earnings ratio down to four-tenths of the highest average P/E ratio the stock reached in the most recent five years.
3. A dividend yield of two-thirds of the triple-A bond yield.
4. A stock price down to two-thirds of tangible book value per share.
5. A stock price down to two-thirds of net current asset value — current assets less total debt.
6. Total debt less than tangible book value.
7. Current ratio (current assets divided by current liabilities) of two or more.
8. Total debt equal or less than twice the net quick liquidation value as defined in No. 5.
9. Earnings growth over the most recent ten years of seven percent compounded — a doubling of earnings in a ten-year period.
10. Stability of growth in earnings — defined as no more than two declines of five percent or more in year-end earnings over the most recent ten years.

Together, Ben’s ten points construct a formidable risk/reward barrier. The first five point to potential reward by pinpointing a low price in relation to such key operating results as earnings. The second five measure risk by measuring financial soundness and stability of earnings.

In their purest forms, hedge funds are about reducing risk. A hedge fund is structured to reduce the risk of the portfolio without sacrificing return. Financial research has shown that investment return is closely related to the risk that an investor takes. In most cases, a hedge fund investor has other investments outside of the fund that carry market risk. The different risk-and-return profile of the hedge fund can offset the risk in the other investments, making the investor, as a whole, better off.

Helping You Weather Market Conditions

Political turmoil, natural disasters, and economic upheaval, for example, all are reflected in the daily machinations of stocks, bonds, currencies, and commodities. Hedge funds are set up to work through this upheaval for two reasons: (1) They have access to a wide array of risk-management techniques that can help limit the effects of market downturns, and (2) They have less oversight and more freedom in their operations, which allows them to move quickly to profit from the wild swings in markets. A hedge fund manager simply makes a trade when the time is right.

Increasing Your Total Diversification

Diversifying your portfolio is an easy way of hedging. A hedge fund increases the amount of diversification in a portfolio because it has a different risk-and-return profile than other investments you may have. A fund also has more freedom to invest in other types of assets. A good hedge fund manager stays plugged into the market, maintaining access to currency swaps, commodity pools, private offerings, and other types of investments that may be hard to own otherwise. A hedge fund manager can generally use investments and investment techniques that would be impossible for individuals to try.

Increasing Your Absolute Return

If you remove market risk, which is the goal of many hedge funds, you still need some return, which is why hedge fund managers look for investments that can bring them alpha. In their search, they may find offbeat investments that can generate a greater return than what they have available from other types of investments. Hedge funds also increase potential return by using leverage. Because a fund can borrow money in ways that other types of investments can’t, it can look for an asset with a relatively low return and relatively little risk that can become an asset that offers a much higher return.

Increasing Returns for Tax-Exempt Investors

Hedge fund managers often invest without concern for the tax implications of its investment positions. That’s perfectly fine for major hedge fund investors, because they don’t pay taxes. For them, the aggressive and offbeat investment techniques that some hedge funds use are a perfect fit, because they don’t have to worry about the friendly revenue collector taking the profits away. If you’re working for a large tax-exempt investor, it makes sense for you to investigate hedge funds as a way to increase your portfolio’s overall rate of return.

Helping Smooth Out Returns

A fund may not go up as much as the stock market during a year when the market is unusually strong, but the fund shouldn’t perform as badly as the market during years when the market isn’t so hot. This baseline may make returns more predictable. An investment in fixed-income securities, like U.S. government bonds, generates a predictable return, albeit a relatively low return. Many hedge funds can offer increased predictability at higher rates of return.

Giving You Access to Broad Asset Categories

Hedge funds have a broader charter. The fund manager doesn’t need approval to try a new investment strategy. She doesn’t have to report to fund investors daily, weekly, or even monthly, so she doesn’t have to worry about how an investment will look on some report card. Private equity deals, complicated currency hedges, and strange commodity plays all have time to work, free of the messy oversight of people who aren’t intimate with the market’s machinations.

Exploiting Market Inefficiencies Quickly

Hedge funds have the ability to move quickly in changing markets. If a fund manager sees an investment opportunity but doesn’t have the necessary cash on hand to make a transaction, he can borrow money from a bank, a brokerage firm, or even a loan shark to make the purchase. Hedge funds are also free to sell short. The ability to sell short increases the opportunities to make money, even in a down market. Another opportunity for hedge funds is merger and acquisition financing. The private-partnership structure limits the number of people who have to approve a capital commitment. A hedge fund can move quickly to make money on even a small difference between the market price of a company’s bonds and the price that an acquirer is willing to pay.

Fund Managers Tend to Be the Savviest Investors on the Street

Hedge fund managers tend to be really smart, are passionate about investing, and care about making money, period. Making you money is their drive, meaning they don’t show interest in sales and marketing, management, and the niceties of business etiquette. Many of the brightest people on Wall Street run hedge funds. When you invest in a hedge fund, you’re more likely to have a sharp manager than if you choose another vehicle for your money. Of course, brainpower is no guarantee of great results. But smarts are a good start!

Incentives for Hedge Fund Managers Are Aligned with Your Needs

Investing in a hedge fund is a great way to ensure that your interests are taken as seriously as the fund manager’s. Although they take a hefty cut of the fund’s profits, they receive that money only if the fund sees profits. If the fund has a losing year, a fund manager can’t collect a performance fee until the fund gets back to the level it enjoyed before the losses occurred, a level called the high water mark. A mutual fund manager, by contrast, takes home a nice salary even if the fund’s performance is poor. In addition to adhering to the pay-for-performance policy, hedge fund managers often manage money for themselves and their families.

You may not consider yourself to be rich but if you have an estate in excess of $2 million, you certainly need an estate plan. Here are five common mistakes that are made in relation to estate plans, along with simple solutions to avoid them.

Not Having an Estate Plan

It’s a fact -– most people do not have estate plans. They have living trusts and wills — but these are not estate plans. Unfortunately, most people believe that their estate planning process is completed merely with a living trust and a will but nothing could be farther from the truth for wealthy individuals. A living trust helps rid your estate of probate but it doesn’t solve your estate planning needs. Likewise, a will may help in expressing your post-mortem desires but it is not an estate plan.

This is a crucial mistake. For example, John Wayne didn’t have an estate plan, he had a will. Yet 25 years after his death, his estate is not yet settled. Again, trusts and wills are not estate plans. Some people recognize this mistake and take the necessary step of going to an attorney and having an estate plan developed. However, it is only too common that they then fail to actually implement the plans, such as putting their assets in a trust or follow-up on other aspects of the plan.

The solution is straightforward: Find a competent professional, get an estate plan and implement it.

Not Maintaining an Estate Plan

People may have completed estate plans when real estate values were less, when stock or other investment portfolios were dramatically different, or when family members were different. For example, divorced in-laws may still be in the estate plan -– is that what you really desire?
It is important to recognize that changes in the value of your estate need to be regularly evaluated. Many parents want to assure equity in division of assets but unknowingly set the stage for an inequitable division of assets because of the directives of the estate plan. Your plan needs to be reviewed regularly for such updates.

Also, the laws may have changed in many areas of the tax code. Estate plans need to be reviewed for such potential ramifications. If anyone thinks that estate taxes will be eliminated, it is foolish planning. There is a “sunset provision” in the tax code that is scheduled to disappear after 2010. It will be tax suicide for the government to not have some type of implementation of estate taxes. As individuals continue to accumulate wealth, rest assured that the government will continue to find ways to tap into it.

On another note, like anything else, change happens – we get older, we may have different values or philosophies, and we might decide to distribute our estate differently than we felt at the time when our estate plan was written. The solution is to put on your calendar to evaluate your estate plan once a year. Do this on a regular basis and you may surprised at how frequently major or minor aspects of your estate plan need to be updated.

Not Involving Your Adult Children in Your Estate Plan

Failing to involve your adult children in your estate plans is a huge mistake because ultimately it is your children who will be writing the check to Uncle Sam. Yet since people don’t like to talk about their mortality, or want to avoid sticky subjects such as inequitable division of assets, they avoid the discussion totally with their heirs.

It is very common for parents to pass away and then the children scramble around to determine what are the estate’s assets, what is their value and what to do with them. For example, children may find something in a safe deposit box and not know what to with it. Or they find a trust deed for a piece of raw land that no one seems to know about. This happens all the time and it is a big mistake.

The solution is to communicate with your kids. Tell your children what you have done and how to implement your estate plan. Discuss the value of your assets. Your children will find out eventually so why not take the time now to tell them something that will help them, is of potentially great value, and you can express how you want it handled.

Not Understanding the Asset Mix in an Estate

It is common for someone to think “I’ve got plenty of money in my estate, let the kids handle the estate taxes.” This is a mistake because people often do not have the amount of liquid assets that might be necessary to pay estate taxes in the best manner.

When we die, the government requires that within nine months of the second death the estate must be settled. In many cases, estate taxes must be paid. You are then asking your children/heirs to write a check to the government. The mistake that people make is that they have assets that are very illiquid, which cannot easily be converted to cash in a short period of time. I call this scenario “liquidity confusion” because people are confused about the liquidity of the assets in their estate.

Other examples include businesses, private placements, private stock investments, personal loans, which are all highly illiquid assets that add to net worth but are difficult to convert to cash without a potentially significant loss in value of the asset and/or difficulties in converting the asset to cash within the required nine month time frame. Do you want your kids to be forced to sell your business in order to pay the estate tax?
It is very important to understand how you can achieve liquidity in enough of your estate in order to pay any necessary taxes. The solution is to understand the assets in your estate and what portion is truly liquid.

Estate Tax is a Voluntary -– We Choose to Pay or Not

Too many people believe that the estate tax is inevitable. However, the truth is that it is truly a voluntary tax. An individual can choose to set up different estate planning techniques to limit estate tax liability – or he/she can fail to do so and thereby “donate” a sizable portion of a life’s work to the government.

It is truly incredible what a well-designed estate plan can accomplish in terms of estate tax minimization. For example, Joe Kennedy had an estate in excess of $600mm. Ordinarily that would equate to around $300 million in estate tax liability. However, his heirs paid less than $200,000 because he chose to deal with the problem of estate tax.

The solution is to employ the help of estate planners. Numerous estate planning scenarios can be developed to limit the estate tax. Each situation is different, so seek professional advice.

With the following savings options, the principal is guaranteed (or close to guaranteed), and the rate of return should keep you even with or slightly ahead of the inflation game:

Local Savings Bank

There’s something to be said for keeping at least a small balance at the neighborhood bank. I do. Need a loan someday? It may be easier if you are a regular customer. Local businesses are also more likely to accept a check drawn on a local bank. Then there’s the “bank experience,” which may be especially important if you’re a parent. Each of my two children has a saving account at the corner bank, and they love going there for the free plate of cookies.

At all savings banks in the United States, deposits are insured up to $100,000 by the Federal Deposit Insurance Corporation (FDIC). Even if the bank goes under, you’re covered. The interest rates paid by local banks tend to be very modest, more modest than those paid by most bonds.

Certificates of Deposit (CDs)

The longer you’re willing to commit your money to the bank, the higher the interest rate. Generally a 6-month CD may pay an interest point more than passbook savings, a 12-month CD may pay a bit more, and an 18-month CD yet a wee bit more. If you have one to several thousand dollars sitting around, perhaps you might put one-third into each. That way, you’re not tying up all your money for the entire time, and if interest rates go higher in six months, you’ll be free to take part of your money and upgrade to a higher-yielding CD.

Shop for the best rates at www.bankrate.com or www.money-rates.com. And especially if you’re dealing with a local bank, ask to talk to the manager and see if you can negotiate something higher than the advertised rate. CD rates are usually comparable to very short-term bonds but are not on a par with longer-term bonds.

Internet Banking

Consider opening an account with a Web-based, FDIC-insured savings bank, such as www.emigrantdirect.com or www.ingdirect.com. The rates on savings accounts are often comparable to one-year CDs, and you don’t need to tie up your money at all.

Money Market Funds

Money market mutual funds are not insured by the FDIC so they aren’t quite as safe as bank accounts or U.S. savings bonds, but they are almost as safe. They tend to offer a slightly higher return than bank accounts but not as much as a bond portfolio. If you hold one of these funds outside of your retirement account, you may want to choose a tax-free money market fund, especially if you are in a higher tax bracket.

Note that with money market funds, your principal is secure but the interest rate is not; it can, and often does, vary from day to day. That’s just the opposite of a bond, by the way: With a bond, your interest rate is fixed, but the value of your principal can vary day to day.

Short-term, High Quality Bonds

Short-term bond mutual funds and exchange-traded funds, both taxable and tax-free, are similar to money market funds and often pay a bit more.

An employee stock ownership plan (ESOP) is a tax-qualified defined contribution plan that allows employees to become owners of their employer’s stock. In fact, stock ownership is the whole purpose of ESOPs — they’re put into place to encourage employees to participate in corporate ownership. An ESOP is the only employee benefit plan that’s required by law to invest primarily in the stock of the sponsoring employer.

ESOPs may be used by corporations to raise capital for the corporation or, in the case of a privately held company, to purchase stock from a shareholder. Tax advantages of the ESOP make the borrowing of funds less expensive through the ESOP than if the corporation borrowed the funds directly from a bank.

One potential danger of an ESOP for plan participants is the lack of diversification of the investments, because at least 50 percent of the plan’s assets is required to be invested in stock of the sponsoring employer. It’s never a good idea to have a majority of your assets in any particular investment, but it can be particularly devastating when that one particular investment is in the stock of your employer. In such a situation, the employer’s failure can cost you not only your job but your retirement savings as well. Other downsides for the participants can include the following:

• Employee securities can be improperly valued.
• Employee stock can be improperly allocated to individual participant accounts.
• Voting rights may not be provided to plan participants.
• The employer’s loans aren’t primarily in the interests of plan participants.
• Fraud, embezzlement, theft, or other criminal actions can occur.

You can get your tips from many places, but when you get a tip — double-check who it’s coming from. Visit eBay’s Community boards and chats, and listen to what the others have to say. Before taking anything to heart, and changing the way you do things, check the tip-giver’s experience.

I often say I love buying from eBay sellers who are also buyers because they respect and understand what it’s like to be a buyer at eBay! Here are a few short tips that I know really work:

Shop eBay.ca

That’s right. If you’re in the United States, why not bid on auctions at the eBay Canada Web site? In fact, if you’re an international bidder, and you’re willing to pay shipping from the United States, then you’ll have no problem handling Canadian shipping charges.

If you’re an American resident, all you have to do is think about the conversion between the U.S. dollar and the Canadian, and oh, oh yes — there are bargains to be had. Be sure the seller has reasonable shipping to the United States before you bid.

Place Your Bids in Odd Figures

Many eBay bidders place their bids in the round numbers that match eBay’s proxy system. You can win by a few cents if you place your bids in odd numbers like $10.97 or $103.01.

If two people bid the exact same amount at the end of an auction, the earliest bid wins. But if you and another bidder bid at just about the same time, you could win by a couple of pennies. I’ve done it many times. For example, a bid of $23.78 beats a bid of $23.75.

Don’t Get Carried Away in a Bidding War

Unless the item is extremely rare, odds are that a similar item will show up at eBay again someday soon. Don’t let your ego get in the way of smart bidding. Let your opposition pay too much!

Watch for Item Re-Listings

If you see an item that you want, but it has too high an opening bid (or too high a reserve) for you to justify placing a bid, there’s a good chance that no one else will bid on the item either. Put that auction into your Watch area of My eBay, and every so often after the auction ends, double-check the seller’s auctions to see if the seller has re-listed the item with a lower starting bid and a lower (or no) reserve.

Combine Shipping When Possible

When you purchase an item, double-check the seller’s other auctions and see whether you’re interested in making a second purchase. If you see something else that appeals to you, e-mail the seller to see if he will combine the items in shipping. That way you can make two purchases for a smaller single shipping bill.

Never Bid Early — If You Do, Bid High

The only time this bidding early works is if no one else is interested in the auction. Usually, though, the tactic will gear up another eBay user to outbid you because suddenly the item is valuable to at least one person. If you must bid before the auction’s close, bid high. As a matter of fact, bid a couple of dollars more than you might want to pay.

Try for a Second Chance offer

If you get outbid and miss the chance to increase your bid on an auction item, you’d be smart to e-mail the seller and ask if he or she has any more. You may get lucky, and the seller can send you a Second Chance offer for your high bid.

A seller may send a Second Chance offer to any bidder who isn’t the winning bidder under two circumstances:

• The winner does not go through with the winning bid.
• The seller has more than one of the item that was sold.

It is legal to purchase in this way. Any purchase you make in this manner will be covered under eBay’s insurance, and you will have the opportunity to leave feedback.

When you begin a savings plan for retirement, you need to make decisions about how to invest the money you save, based on your retirement goals, the length of time you have to achieve them, and the amount of money you can set aside.

Dollar Cost Averaging

Dollar cost averaging is a reliable way to make regular investments. You invest a fixed amount — whatever your budget allows — on a monthly basis. Over the long term, with dollar cost averaging, you can buy more shares at a lower price because the market is rising overall.

Reduce Brokerage Commissions

You may feel more comfortable using the services of a brokerage firm for transactions, in order to benefit from the knowledge and expertise of a broker. However, if you want to minimize brokerage fees and are willing to take on the task of researching investments yourself, you can reduce the brokerage commissions you pay through the following methods:

1. Buy direct: Some companies are willing to sell shares directly to investors. Many also allow the investor to participate in the company’s dividend reinvestment plan (DRIP). To check for companies that allow for direct investments, contact The Moneypaper or Netstock Direct.
2. Pursue no-load mutual funds: A no-load fund is one that doesn’t add charges, either when you buy or when you sell. You can invest a small or large amount of money on a regular basis even if your investment dollars only buy fractional shares. Many of these no-load mutual funds work with automatic deductions from your bank account.

Use Qualified Financial Planners

You may want to work with a professional financial planner who can help you analyze your retirement goals and strategies and recommend the balance in your investment portfolio, or collection of investments, that works best for you.

Financial planners are trained professionals. Get recommendations from your accountant or tax preparer or by consulting a directory of these professionals in your area. Certified financial planners (CFPs) have taken a series of courses, passed a six-part exam, and have a minimum of three years of experience.

There are no set fees for financial planners; some work for a fee, others work on commissions, and some are paid with a combination of the two methods. If you decide to use a financial planner, interview at least three candidates and ask each about their fees and their experience. Ask also to see their resumes and a list of references.

Retirement Investment Tips

Your retirement will be more comfortable and worry-free when you take advantage of the following strategies:

1. Contribute to your retirement plan at work to the maximum degree possible: Take advantage of all matching funds your employer will put in your 401(k).
2. Keep up with the changes and trends in Social Security: Know how your Social Security benefit fits into your retirement plans.
3. Save and invest regularly for your own retirement: Small but regular savings are easier on your budget than large lump sums.
4. Start now: All the data show that when you start saving for retirement early on, your savings and investments can provide a comfortable retirement and financial security that you can’t achieve when you start later. Remember the miracle of compound interest.
5. Diversify your investments: Don’t put your retirement nest egg into one basket. Investing in a mutual fund provides some kind of diversity. Include a variable annuity, additional mutual funds, a Roth IRA, or other instruments in your retirement portfolio.
6. Do something: No decision is foolproof, but take that first step anyway. If you aren’t happy with the results over a period of time, don’t be afraid to make a change.

Invest After a Rally Has Woken Up

Some people revisit their investments only when the market rallies 10 percent. They end up catching the market at a near-term high and only put their money in after the price has gone up. It is akin to buying a suit only after the sale ends.

Envy, sloth, and greed drive this mistake. When a rally occurs, you see others benefiting, envy their success, and want to get in on it. You’re guilty of sloth because you’ve ignored your investments only until the rally has roused you of your torpor. The slothful investor is one who doesn’t pay attention to investing until Newsweek’s cover declares a bull market.

Greed also prompts this mistake because you see the Newsweek cover and are convinced that you can find a way to make a fortune.

Sell After the Market Makes a Significant Correction

Typically, anger is the cause of this mistake. When investors give up on a losing market and the downside volatility and sell, they usually do so out of anger. It is as if the market has let them down, and they’re furious with it for doing so. Their anger clouds their thinking and one part of them believes that the market will never recover or it will take years for it to rebound. As a result, they often sell prematurely and lose out when the market rallies.

Believe You Are Privy to a “Secret”

Typically, people receive a tip from the proverbial “friend of a friend” who knows that some little-known company is about to introduce a revolutionary new product, and they have a chance to get in on the ground floor. Some people receive tips from even more unlikely sources — cabbies, plumbers, bartenders — and take them as gospel.

Greed is the culprit here. Generally, individuals who act on what they hear from these sources are greedy. They want so badly to make huge amounts of money that they convince themselves a dubious tip is valid; that an unsubstantiated rumor will cause a moribund stock to experience a dramatic price increase.

Sell Too Quickly

Gluttony feeds this mistake. Gluttons need the action that selling provides, and as a result, they sell too quickly and miss out on potential capital appreciation and dividends, and pay a lot in taxes and commissions. Premature selling often causes people to desert a winner too quickly.

Double Down on Bad Investment

This mistake also might be called, “Throwing good money after bad,” and though a multitude of sins can catalyze it, pride and lust are usually the main culprits. Hubris prevents investors from admitting they made a mistake; they double and even triple up a bad stock to avoid facing their initial, flawed reasoning.

People also increase their investment in losers when they are obsessed about a stock. For reasons deeper than I’m qualified to go into, some individuals become fixated on a given investment, absolutely certain that it’s going to pay off in a big way, even when all the evidence suggests otherwise. Their lust overcomes reason, and they make the doubling mistake.

Buy Stock (Fund) You Know Little or Nothing About

Who would make such a mistake? A slothful investor, that’s who. Astonishingly, some people are just plain lazy when it comes to investing or they convince themselves that knowing a little is just as good as knowing a lot.When they avoid the facts — when they buy based on the skimpiest of trends or because of a system that is more voodoo than knowledge-based — they are likely to take a flyer.

Duplicate Someone Else’s Investment

This mistake perhaps makes sense to envious investors. They know or hear about someone who struck it rich with a particular stock, type of fund, or investing strategy, and they decide to copy it. They assume that if it worked for one person, it will work for another.

Of course, the fallacy inherent in this reasoning is rooted in timing: If it worked yesterday, it doesn’t mean it will work today. Still, if you’re sufficiently envious, you can easily overlook this truism, preferring the illogic spawned by an intense desire to have what someone else possesses.