Myth 9: The media is always right

The 90s will be remembered most for the infamous "dot com" mania. The covers of popular investment and business magazines illustrate just how caught up the investing public was in the euphoria of the 90s. Huge inflows into technology mutual funds in the first quarter of 2000 weren't the only vehicles people poured their money into, as investors discovered the benefits of individual stock ownership during this period as well.

Here's a realistic look at some of the "can't lose" investment stories some of these publications recommended:

Myth 1 Myth 2 Myth 3 Myth 4 Myth 5 Myth 6 Myth 7 Myth 8 Myth 9

Run with your winners. The danger with staying with a winner is that once a share price gets too inflated, it no longer reflects its true value. Sticking around and hoping it will go higher is just a gamble.
The new economy has the edge. Many people thought that dot coms and other start ups would have lower expenses than more established 'brick and mortar' firms. But 'old economy' firms can have an edge due to economies of scale and the fact that they are entrenched in their industry sector.
Buy on the dips. When it comes down to it, you need to know what you're buying. Just because a stock drops in price doesn't mean that it's a good value. Some of those stocks never recover and it takes research to find out which ones might bounce back.
Buy and hold. Contrary to what many believe, this doesn't mean buy and ignore. Sometimes you need to sell an investment, and it's important to have a pre-determined exit strategy, so you know when.
Buy what you know. In the 80s, successful mutual fund Peter Lynch bought companies that made products he and his family were familiar with, leading smaller investors to think they too could pick winning stocks based on what they knew. What they didn't realize however, was that he had the benefit of extensive research and some 1400 companies in his portfolio. It's not what you know, but rather diversification, that matters.
What goes down must come back up. One of the most common mistakes investors make is to buy stocks that are 'down' in price. There's no guarantee to what a stock will do, and no guarantee that a stock that is down in price is a better bet than one that's trending upward.