A financial advisor friend of mine sent this “How to” list to me.
Of course it is written tongue in cheek and is more of the list of what NOT to do so you will not lose your money!
How To Lose Your Money
Step 1 Buy whatever stock or asset class or country or mutual fund or fund manager or hedge fund that has done really well for the last year [or last month]. Investments only go in one direction, right?
Step 2 Watch Cramer’s MAD MONEY and do whatever he recommends.
Step 3 Time the market: watch MSNBC and FOX NEWS 24-7, so you know when to buy and sell.
Step 4 Completely ignore the true costs of buying and selling. Do not calculate the bid – ask spread that is being skimmed from your accounts.
Step 5 Ignore tax consequences and focus on buying and selling as much as possible, since that is how Wall Street gets wealthy… from the transaction costs. And if Wall Street makes money… of course you will too.
Step 6 Make sure you take advantage of every stock tip.
Step 7 Invest in what you know, since you are obviously smarter than the millions of other participants in the global markets.
Step 8 “Back-test” your trading strategy, since we all know that the stock market is completely predictable.
Step 9 Tell everyone you know if you make money, but not when you lose it. That way when you are penniless, at least you will have a great reputation.
Step 10 If you see a hot company on the cover of Fortune magazine, be sure to buy it as soon as possible, since you are the only one who reads the cover of magazines.
Step 11 Never calculate the return of your investment strategy for the last 1, 5, 10 and 20 years and compare it to an appropriate index. Remember, if you don’t know it is broken, you don’t have to worry about fixing it.
Step 12 When your broker wants to sell you a municipal bond, never ask about the hidden costs [bid /ask spread] implicit in the illiquid bond market. Just buy whatever he wants to sell, since of course your broker is putting your interests first.
Step 13 If your hot stock has gone down 95%, make sure you hold onto it forever, since it just HAS to go up eventually, right?
Step 14 Buy as many stock-picking newsletters and online analysis tools as possible, since what you spend does not “count” as a true cost, right?
Step 15 Under no circumstance should you look to see how banks and financial institutions invest their own money, since they don’t work with a financial advisor. Only listen to the financial advisors.
Step 16 Buy as many different stocks and bonds and mutual funds as possible, since you will obviously be more diversified. Mutual funds never hold the same stocks, right?
Step 17 If your broker or advisor wears a very expensive suit, his advice is obviously “golden”, and you must do everything he advises you to do. Also, do not listen to academic researchers, since their clothes are not fashionable.
Have a great day.
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