5 Easy Investing Mistakes to Avoid

Welcome to StockUp, the investing newsletter that's stockpiling Halloween candy for ... you know ... reasons. -------------------------------------------------------------------------------------------------- [View this email in your browser]( Welcome to StockUp, the investing newsletter that's stockpiling Halloween candy for ... you know ... reasons. This week, we've got five investing blunders you absolutely must avoid. Plus, three crucial things you need to know about stock market crashes, and a trio of investing lessons from the formerly wealthy residents of Schitt's Creek. — Nathan Alderman, StockUp Editor DON'T DO ANY OF THIS 5 Easily Avoidable Investing Mistakes --------------------------------------------------------------- Whether you're brand new to the markets or have been investing for years, you're only human. (Unless you're a sophisticated trading algorithm that just happens to enjoy browsing email newsletters in its spare time, in which case, hello, and feel free to skip to the next item!) All the experience in the world can't spare you from the ups and downs of human emotion — and the costly mistakes those feelings can lead us toward. Fool (and Certified Financial Planner) Robin Hartill has flagged five expensive blunders that most often trip up new investors, but which can ensnare any of us if we're not careful: - Waiting for the best time to invest. No one can time the market. (No, not even you, Sophisticated Trading Algorithm.) But thanks to the power of compounding interest over time, the best time to invest is, well, yesterday. The next best time to invest is right now. Market ups and downs will even out over time, but you'll never get back any years of money-magnifying compounding power you might lose by dawdling. - Trading too often. Most brokers offer zero commission fees, removing one of the financial perils that used to accompany frequent buys and sells. But studies show that folks who jump in and out of stocks tend to underperform those who buy and hold. And short-term trades will also cost you the long-term benefit of lower capital gains taxes on any profits you make from those stocks. - Buying something you heard about on the news. By the time Jim Cramer's hitting something with a baseball bat while shouting about it, you're too late. Look for stocks that don't attract hype, excessive investor interest, and consequently inflated prices. - Buying "cheap" stocks. Hey, it's trading for just a few bucks a share! What do I have to lose? The answer, as it turns out, is "quite a lot." Always look past a stock's price tag to its underlying strengths and strategies. - Cashing out when things look bad. Turns out human beings are super not great at estimating how well they'll stay calm in the face of risk and panic. (We see you gloating over there, Sophisticated Trading Algorithm.) Downturns are going to happen. Selling all your stocks when they do just means you're more likely to miss out on the gains when the market recovers. Learn more about why you should avoid these errors at all costs when you [read the rest](. --------------------------------------------------------------- Already subscribed to a premium service? [Click here]( to view your subscriptions. Not a member yet? [Click here]( to sign up! --------------------------------------------------------------- JARGON DECODER Let Your Cash Flow Free They don't call it "Wall Street" for nothing; the big banks there build bigger barriers of baffling terminology to keep regular Fools like you intimidated, underconfident, and ready to fork over your cash to a broker. Each week, Jargon Decoder translates one of those worrisome words or phrases into plain English, helping you get a leg up on the Wall Street Wise. This week's term: free cash flow. We Fools love this metric, but you might not have heard much about it outside our Motley crew. To understand how it works, think about your own monthly budget for a second: Money comes in from your paycheck. You have to spend some of that money on necessary expenses such as housing, food, and utilities. When all those bills get paid, you can spend any remaining money on whatever you want. Free cash flow measures the same thing for companies: How much they have available to spend on expanding and improving their business, or reward shareholders with buybacks or dividends, once they've covered all their nonoptional expenses. But wait, you're saying — isn't that just a company's net income, its so-called bottom line? Technically, yes, but net income factors in all kinds of legally required adjustments, so it might not reflect the actual cash a company has on hand at any given time. To calculate free cash flow, look at a company's statement of cash flows for the line marked "cash from operating activities," "operating cash flow" or something similar. This number tells you how much cash a company has in its wallet, so to speak, once it adds back all its on-paper adjustments to its net income. Take that operating cash flow figure, then subtract capital expenditures — sometimes listed as "property, plant, and equipment" expenses. The company absolutely, positively must keep paying these bills to keep running. Operating cash flow minus capital expenditures equals free cash flow, the spare cash a company has left after it covers the essentials. Growing free cash flow means a company's getting stronger and better able to reinvest in its future — even if accounting demands mean that extra financial fitness doesn't show up on the bottom line. --------------------------------------------------------------- WHAT GOES UP MUST COME DOWN The 3 Most Important Stock Market Crash Statistics You'll Ever See Like we said above: Crashes happen! The first few months of the year proved that abundantly, as the market lost roughly a third of its value in just 33 days — and then hit a new all-time high just five months later. But with flu season kicking off and COVID-19 cases and hospitalizations once again on the rise, no one knows what the market might do next. So take a deep breath, steel your nerves, and let Fool Sean Williams educate you about why market plunges aren't always as dire as they seem in the moment. - The market crashes a little more than once every two years. Every 1.84 years on average, to be exact. Investors should expect the occasional dip in the market's overall upward march. It happens, it's normal, and it's nothing to freak out about. (... And now we sound like an instructional video from your high school health class.) - The average crash lasts about six months. Most have lasted only about half as long! And over time, as more investors get better information about the market, crashes and corrections have tended to get shorter and shorter. - The bulls always win. No matter how steep the market's loss, it never fails to recoup and surpass its previous peak. Like the current pandemic, we don't know how long a market crash will last, or when or how it will end. But we can take heart that at some point in the future, things will get better. To learn more about how long-term investors can profit when the rest of the market panics, [read the rest](. --------------------------------------------------------------- ALEXA, DOES ROSE APOTHECARY HAVE AN ONLINE STORE? [Smart Speaker] Not sure what to ask your smart speaker? Keep up with what's happening in the market by asking your Amazon Alexa or Google Home to "Play Motley Fool podcasts." --------------------------------------------------------------- EWWW, DAVID! 3 Investing Lessons From Schitt's Creek If you haven't already seen the cult hit turned widely beloved Emmy-crushing TV comedy Schitt's Creek, you might want to go binge a few seasons before you read this. Like a sweeter, less cynical Arrested Development, the series follows the ultrarich Rose family as they lose their money and rediscover their best selves in their last remaining asset — a tiny, rural town with a really unfortunate name. When she's not enjoying a delicious glass of fruit wine, Fool Maurie Backman has panned this particular creek for a few nuggets of financial gold worth sharing: - Keep an eye on your portfolio. The Roses lose everything when their unscrupulous financial advisor skedaddles with all their money. Most such folks are honest and aboveboard, so if you want to trust your cash to someone else, feel free. Just keep an eye on where they're investing your money, to make sure it's going where you want it to. - Diversify. The Roses originally bought the deed to Schitt's Creek as a joke. But that diversification into unexpected sectors gave them a safety net when everything else fell through. We're not saying you need to invest in real estate — just remember that a healthily diversified portfolio can even out unexpected financial ups and downs. - Don't give up. As we keep mentioning this week, markets can crash when you least expect it. And when they do, your portfolio could sustain painful losses that seem insurmountable. But like the Roses, regroup and rebuild. Start with what you're good at, learn from your mistakes, and you'll likely do better in the future. When you're finished rewatching the latest chilling installment in The Crows Have Eyes franchise, learn more about how to ensure that everything comes up Roses by [reading the rest.]( --------------------------------------------------------------- BELIEVIN' IN STEVEN FEATURED PODCAST [Motley Fool MOney]( Tim Cook's Leap of Faith Even before he became CEO of Apple (NASDAQ: AAPL), Tim Cook was known as a steady operator who was both thoughtful and, at times, cautious. Best-selling author Leander Kahney shares how joining Apple in the late 1990s might have been the biggest risk Tim Cook has taken in his professional life. [Subscribe on iTunes]( --------------------------------------------------------------- UP IN SMOKE? Quick Reads - [In the weeds:]( Why decriminalizing marijuana at the federal level might not lift the legal pot industry to new highs. - [It's a streaming world after all:]( Why investors should love Disney's (NYSE: DIS) new focus on piping content straight to subscribers. - [Side effects include concern and uncertainty:]( How much should investors worry about unexpected symptoms of in-progress COVID-19 vaccines? --------------------------------------------------------------- BUT I WANT IT NOWWWWWWW Social Media Post of the Week [The goal of investing isn't to minimize boredom, it's to maximize returns.]( [See all our Instagram posts!]( Join the 1,300,000+ people who follow us! [Facebook]( [Twitter]( [Instagram]( [YouTube]( [LinkedIn]( We work fervently, fastidiously, and Foolishly to make sure all the facts and figures we publish in our emails are 100% accurate and up to date. Returns as of October 14, 2020. 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