Avoid speculative securities. Initial public offerings (IPOs), penny stocks, and “hot tips” aren’t worth the risk. Even the best traders don’t buy all their stocks at what turn out to be lowest prices; mistakes are part of the business. But good quality stocks recover and eventually go on to new highs; losers just curl up and die. IPOs are simple to deal with. The “hot” ones go to large institutional customers; the little person might get a few shares if he/she is lucky. If you are offered a good chunk of an IPO, odds are the broker was unable to unload all the shares to institutional customers and is calling with a “hot tip” because he’s got to get rid of them somehow. Penny stocks are a speculator’s dream. A $40 stock that goes up an eighth equals a yawn, but a $1 stock up 1/8 equals a 12.5 percent gain! There’s also the ego boost of saying “I just put away 10,000 shares of X.” But “up 1/8″ can quickly become “down 1/8.” And wait until you see the commission on 10,000 shares! Temptation, get thee hence!

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