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'A Million Ways to Die' in the stock market

Trader on the floor of the New York Stock Exchange.
Getty Images
Trader on the floor of the New York Stock Exchange.

Moviegoers find out this weekend the million ways they could have died in the West. But there an equal number of perils that shot up investors' portfolios on Wall Street this year.

Seemingly innocent mistakes constantly trip up investors. These errors may not kill investors, but cost some serious money in the process. There's not enough room here to discuss the million ways investors could have died in the market this year, but here are the top five:

Going for hot initial public offerings

IPOs are oh-so-tempting to beginning investors. The idea that you're getting in on the ground floor of the next big thing is alluring. The trouble is, when IPOs are attractively priced those shares go to privileged and large investors first. If you can actually buy a meaningful number of shares of an IPO, you probably don't want them. Some of the year's worst-performing IPOs have been spectacular flops. Cancer diagnostics company, Biocept, is the worst performing IPO of the year, falling 56 percent from its offering price, says IPOscoop.com.

But even investors who jumped into a broad basket of deals at the peak of this year's IPO mania are paying dearly. The diversified Renaissance IPO exchange-traded fund, which owns recent IPOs, is down 9 percent from the March 5 peak this year, while the Standard & Poor's 500 is up 2.5 percent.

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Failing to cut losses at 10%

Most investors know diversification is for their own protection. Spreading bets over dozens if not more stocks reduces the hit from an individual company's woes. But when playing with individual stocks, cutting losses is critical. A good rule of thumb is to sell a stock once you lose 10 percent of what you paid.

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Investors in organic food seller Whole Foods learned this the hard way this year. Shares of the stock tanked 10 percent before the month of January was even over. That was investors' chance to get out. Investors who have convinced themselves the stock would "come back," saw things go from bad to worse. Shares of Whole Foods are now down 34 percent this year, making it one of the worst stocks in the S&P 500 this year. That means Whole Foods' shares need to rally 52 percent before investors break even with where the stock started the year.

Trying to guess the direction of interest rates

At the end of last year, investors absolutely convinced themselves interest rates simply had to rise in 2014. That had to kill bonds — or so popular wisdom said.

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What a bad bet that was. Bonds, which see their prices gain when yields fall, have been rallying all year. The Vanguard Total Bond Market ETF is up 3 percent this year, an incredible gain for such a investment that yields 2 percent and long-term has very low volatility.

Jumping on hot stock themes

Social media stocks could do no wrong in 2013. But investors that jumped into the likes of LinkedIn, Twitter and Angie's List this year have been pounded this year. Just about all these social media darlings have been wealth crushers this year. Twitter is the best example. Shares of the online short-messaging service, which was supposed to do in Facebook, are down 47 percent this year. And here's the true ironic twist, shares of Facebook are the only winners among social media stocks, up 17 percent.

Social media stock performance

Stock Symbol YTD % Ch.
Twitter TWTR -46.50%
Angies List ANGI -28.80%
LinkedIn LNKD -24.50%
Zynga ZNGA -10.00%
Yelp YELP -0.60%
Facebook FB 16.50%
S&P Capital IQ, USA Today research

Investors often assume the stock sectors that won before will keep winning. That's true, until it's not. Consider what would have happened last year. The top sector of the 10 tracked by S&P Capital IQ was Consumer Discretionary, which contains shares of companies that items consumers don't need to have, such as designer apparel.

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The Consumer Discretionary sector jumped 41% in 2013. However, this year, that same sector is the absolute worst, losing 1.8 percent. Healthcare did well in 2013 and also 2014 so far. But industrials, winners of 2013, are lagging the market this year. And financials followed their strong 2013 run with a ho-hum start to 2014. Beneath the surface some prominent banks have fared much worse. Shares of Citigroup are down 9 percent this year.

Here's the ironic part. The utilities sector was the worst in 2013. Investors were terrified stocks largely owned for their relatively high dividend yields, like utilities, would suffer if interest rates rose. Well, rates didn't rise, they fell. Utilities therefore are the best performing this year, gaining 11.8 percent.

Performance by sector

Sector 2013 % Ch. YTD % Ch.
Consumer discretionary 40.90% -1.80%
Healthcare 39% 7.60%
Industrials 37.90% 3.50%
Financials 33.40% 1.70%
Energy 23.90% 7.80%
Technology 23.90% 5.70%
Consumer staples 23.20% 4.00%
Materials 23.10% 6.20%
Telecom 22.40% 1.50%
Utilities 8.70% 11.80%
S&P Capital IQ, USA Today research

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