Listen to Your Mother!

 | Sep 10, 2013 | 1:00 PM EDT
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Your mother may have never bought a share of stock in her life (or in the case of my wonderful mom, never understood how buying a share of stock in a company works in the first place), but the best investment advice comes from mom. We just have to open our eyes and see that mom was right all along. Let's consider two rules our moms worked tirelessly to sear into our minds (sometimes without success) and the investment lesson embedded in each.

Eat Your Vegetables 

The underlying premise is that sometimes the things we don't like are actually what's best for us, while the things we like can be harmful. This investment lesson is invaluable. Following the crowd or doing the popular thing can be harmful to an investor.

The Internet bubble of the 1990s had people crazy for Internet stocks. No one could stand seeing others making millions on the latest dotcom IPO. By the time the masses started piling in, these stocks were falling off a cliff.

And what about the housing bubble? Everyone was buying big, so they started buying more than they could afford.

But the prudent investor ate all his vegetables. By buying what he could afford, he came out with his assets in better shape.

So remember to eat your vegetables. Focus on stocks with attractive valuations that will be healthy for your portfolio and not what is merely popular or tasty.

General Motors (GM) is a great example of this because many investors still stay away from the company given its past troubles. But GM is more nimble than ever, producing excellent vehicles, and its margins are expanding. The company is beginning to gain popularity on the strength of new vehicle sales data, but it's still on the "wait and see" list of many investment managers.

Marry Wisely 

Perhaps the ultimate bit of motherly wisdom is for choosing the right life partner. Finding the right person to share your life with involves getting to know the person, understanding their views on life, assessing their characteristics, observing their strengths and weaknesses, learning about their values and motivations, and determining if all of that can lead to a long-lasting marriage. We know why that is important: As you go through life's highs and lows, you will never doubt that you chose the right person.

If you want to avoid recurring investment mistakes, pursue your investment process similarly. Learn as much as you can about a company, understand its competitive strengths and weaknesses, its industry and the marketplace. Assess the quality of the company's balance sheet to determine if it is a high-quality choice or a flaky fling. Determine if the valuation is right for you before committing to invest. If you do that, when the company goes through a down cycle as most companies inevitably do, you won't bail out at the first sign of trouble.

Thanks, Mom! Your wisdom is invaluable.

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