4 self-destructive things investors do when buying stocks

The stock market rarely complies with expectations, but it does reteach the same lessons over and over again.

Right now investors are enjoying the Trump rally, but I see many who are still concerned about the insecurity we have in the world today. It doesn't matter which generation you were born into. When people feel insecure, actions often have a feel-good effect akin to a sugar high.

Putting this into a markets context, investors tend to lose the ability to think through the consequences beyond five minutes out. It's an advisor's job to gently walk clients back from the cliff when their investment objectives are about to go over it. This requires "un-teaching" clients misconceptions before we can get to the correct and helpful concepts.

So now is as good a time as any to review a list of red flags I've compiled — a.k.a. cringe-worthy and self-destructive things investors say — from things I've heard too many times during my multidecade career. Here are four of the most infuriating.

1. "I only want stocks that are under $10 per share because I can't buy enough shares of a $100 stock to make it worth my while."

This is at the top of the list. Seriously, this person would skip out on enormous winners such as Starbucks (SBUX), Facebook, Nike (NKE), Google (GOOGL) and other strong performers because of this reason?! I mean, did you ever hear Warren Buffett give that advice? What's the difference if you make 10 percent on 1,000 shares of a $10 stock or 10 shares of a $1,000 stock? With this limitation imposed on a portfolio, you can't add quality stocks. Not good. And don't even get me started on the attractiveness of "the penny stock that is really a nickel." Yeah, you just keep hoping that that cannabis stock is going to be the next billion-dollar blockbuster drug.

2. "I only want low P/E stocks."

OK, so you want to over-concentrate your investment portfolio with companies that are often on their way lower? A low P/E ratio could mean several things, and you really need to understand what those are. P/E ratios are often a matter of the industry a company is in. It could also mean that a company's forecast of earnings are flat or trending lower. In fact, during recessions, industrial company stocks often see their P/E ratios spike higher because the "E" in the ratio plunges. That means you wouldn't be able to take advantage of opportunities when times get rough.

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It also means you don't understand that P/Es are based on after-tax earnings and a lot of math happens from the top line to the bottom line on its way to reported earnings per share. Never mind that you'll miss out on other sectors, which makes it impossible to properly diversify your portfolio.

3. "But it has a really big dividend."

OK, I get this one. Boomers and seniors are desperate for more yield in this ultra-low interest-rate environment. But there are other things that need to be looked at when evaluating a stock beside the juicy dividend. There are separate factors to just evaluate the source and safety of the dividend, too. A big dividend , to a lot of investors, implies safety. Not necessarily so. Are the earnings sufficient to cover the dividend? Is the payout from a dividend payout or dividend policy? A dividend policy means it could come from earnings or from principal. Maybe the dividend is fat because the stock had a big drop in value because there are problems with the underlying company. You have to look into these things.

4. "I only want safety, so I want to stick with blue chips and bond-equivalent stocks."

Stocks are stocks, which are risky. Stocks have never and will never be bonds. A one-hundred year-old company is probably safer than a two year-old company, but that is an assumption. Staying power is a key determinant of a stock's safety profile but blue chips stocks get hit hard too and sometimes they don't recover. If you want safety in a low-yield environment, your options are cash equivalents — CDs, money markets, savings accounts and the like. Nothing safe pays a good yield, and nothing that pays a good yield is safe. That could change, but it's where we are today.

Here's the good news: I hear these things less and less. Here's the bad news: Old misconceptions die hard.

— By Mitch Goldberg , president of investing firm ClientFirst Strategy

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