10 Mistakes That Plague Retail Investors

No doubt these are trying times. Even Wall Street’s most sophisticated investors are struggling to find ways to make money. The situation is enough to make throw their hands up, cash out and leave the game for good.

They shouldn’t, though, Cramer said Wednesday during his 1,000th show celebration. As long as retail investors avoid 10 key mistakes, which he called “plagues,” they, too, can generate returns during a recession.

Be flexible. Often times the first reaction to finding out a stock pick didn’t work is to dig in your heels. But when you’re wrong, you’re wrong. Better to get humble, readjust and move on. Just think about all those perma-bears who missed March’s big move.

Don’t be fully invested all the time. Cramer often extols the virtues of cash. Sometimes you need more than usual, but at least some part of every portfolio should be in cash. That extra money protects against a downturn and provides buying power when stocks go on sale.

Don’t believe the stock snobs. Sure, index funds are great. They are a safe way to play the market. But don’t let any “professional” money managers talk you out of trading stocks on your own. If Cramer has consistently beat the market, he said, you can too.

Look for opportunity when everyone else is ready to quit. That’s what Cramer suggested at the beginning of March. While most people doubted a turn in the market, he thought the downside was limited with the Dow at 6,500 and urged investors to take advantage. What happened? The market jumped 20%.

Prepare for losses. Everyone loses money in the market. Knowing it will happen eventually prevents you from getting rattled when it does. That way you can brush it off and get back in the game.

No one can call an exact top or bottom. That’s why Cramer recommends buying and selling in increments. If a stock rises or falls immediately after your last transaction, then you get another chance at making money.

Single-digit stocks trade at those levels for a reason. So don’t be tricked into thinking they’re cheap. The same goes for those with very low price-to-earnings multiples. Either way, your downside can still equal 100%.

Don’t believe the hype. You can’t believe everything you hear, whether from Wall Street analyst, company CEO or TV pundit. So do your own homework. No one cares more about your money than you do.

Remember: It’s buy and homework, not buy and hold. Buying stock and forgetting about it is lazy investing. And it can kill a portfolio. As Cramer said, just think about all those people who bought and held Lehman Brothers .

There are winning plays in this market. Brinker, Bed Bath & Beyond and Best Buy are all headed higher as they take market share from competitors that collapsed under the weight of this recession. Retail investors can take advantage – as long as they avoid the 10 plagues.

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