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Well, the biggest blunder that people make is by letting their emotions get a hold of
them, by buying only when people are all optimistic, and by selling just during those inevitable
periods we're in recession and things are tough.
The other blunder we make is we tend to go and buy those stocks or those funds that invest
in those stocks that are currently popular. That's what happened in the 1999-2000 period,
and people simply piled into the Internet stocks. And it didn't work for them. It's
not that the Internet wasn't important. It's not that the Internet didn't grow.
But take a company like Cisco Systems. Cisco makes the switches and routers, the backbone
of the Internet. Cisco grew rapidly during the first decade of the 2000s. But you lost
80% of your value if you owned Cisco stock. Why did you lose 80% of its value? The reason
is that Cisco sold at 125 times earnings in 1999 and early 2000. And now, it's selling
at 13 or 14 times earnings. So yes, the earnings grew. But the price earnings multiple collapsed.
There is a study by Delbar Associates that asked the following question: "What does it
cost investors simply because of their bad timing going into the market when you're optimistic
and out when you're pessimistic and going into the wrong types of funds?" And Delbar
found that this cost investors five percentage points of return. And that's the kind of blunder
that we're trying to avoid, and I think we will avoid it with the way that we have set
up Rebalance IRA with its dollar-cost averaging, with its broad diversification, with its low
costs, with its use of index funds. We think we can avoid those mistakes and I'm pretty
sure we will.