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1. Because you like the name of the company — This is pretty much the equivalent of picking a company at random and giving them money. It’s important to know more about a company than just its name. (How is it doing financially? What sector is it in, and how is that sector expected to do in general? How has the company performed in the past? What are its plans for the future?) This doesn’t work for football pools either. I’ve tried it.

2. Because you or a friend or relative work(ed) at the company — It might be a great company to work for, but that doesn’t necessarily translate to financial success for investors. Again, it’s important to do research on the company before investing.

3. Because everyone says it’s a good stock — “Everyone” said that real estate always goes up, and we all saw what happened with that. The herd mentality is not a reason to invest in a stock.

4. Because you use the product — This actually might be a reason to consider buying a stock. After all, it’s nice to know that people use a company’s product. But buying based solely on this point alone is akin to not doing any research on the company or the current market. Not a good basis for a purchasing decision.

5. Because the stock has a cute, easy-to-remember symbol — Once again, this is buying without doing any research, hoping to randomly hit a good stock out of the thousands of stocks out there. It doesn’t matter whether the symbol is cute or not; it matters whether the stock is profitable or not.

6. Because you randomly got a hot tip about a stock over your fax machine or via email — Most likely, the “hot tip” is being sent out as part of a pump & dump scheme. That is where someone who owns the stock tries to artificially pump up the price so that they can make a quick buck when they dump the stock. Don’t get suckered in.

7. Because your brother-in-law’s friend’s cousin made a killing on the stock — First, who knows what really happened? This is hearsay/gossip. Second, if it turns out that the person really did make a killing on the stock, chances are high that it’s way too late for you to do the same. You would most likely just be buying high & then selling low.

8. Because that’s where your dart landed on the list of stocks — This is the “a monkey can do it” theory. The thing is, they’re not saying that monkeys are good at picking stocks. They’re saying it’s hard to pick stocks. Don’t buy without doing research.

9. Because you don’t want to miss out on the latest trend — By the time the average person hears that “Technology stocks are hot! Financial stocks are way up!” — they’re not. Plus desperation or fear of missing out is never a good basis for a decision.

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