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Avoid Popular Stocks like the Devil

By Ellen Chang

NEW YORK (MainStreet)--Buying the popular stocks or initial public offerings touted by institutional investors or popular traders may appear to be a good opportunity.

Since the companies are well known and highly publicized, it seems like their stocks are a good purchase, because their products are often used by the masses.

Financial advisors and other experts advise that investors shy away from imitating their moves and instead focus on purchasing mutual funds, exchange traded funds or other investments which provide long-term growth.

The majority of your investments should be in mutual funds, advises Heriberto Latigo, a Houston, Tex. trader for a private oil trading company.

"You want mutual funds, so it is easier to diversify risks," he said. "Mutual funds are actively managed. The flexibility is perfect for the majority of the investors."

Investors should research whether the mutual funds are a value or growth play, said Andrew Valentine Pool, a portfolio manager for Regatta Research & Money Management, LLC, which is based in New Orleans. He recommends purchasing a mutual fund index.

"Let the portfolio managers of the mutual funds do all the work, because it helps you spread your risk around," he said.

John McDonough, president and CEO of the Studemont Group based in The Woodlands, Tex., recommends that investors buy exchange traded funds, because they trade like a stock. Mutual funds only price at the end of the day after the markets close.

"Timing a market is fool's gold," he said. "There is so much risk that you don't know about."

While buying Google or Facebook's stocks seem like a good opportunity to make some cash, Latigo said most individuals need to stay away from purchasing stocks unless they have $250,000 in liquid investments.

"This is my mantra," he said. "I don't recommend anyone buying stocks."

Stick with mutual funds to diversify your risks, Latigo recommends. Some mutual funds are flexible and even allow you to trade daily.

Otherwise, an individual investor would need to purchase 12 to 15 unrelated stocks from their discretionary income. After broker costs and commissions, most investors are not likely to "gain any traction," because they will not be able to purchase many shares of each stock, he said.