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Ask a Fool: What are some common mistakes beginning investors make?

Ask a Fool: Mistakes beginning investors make?

Q: I recently opened my first brokerage account, but I'm worried that I'll make some rookie mistakes. What are some common mistakes beginning investors make, so I can be sure to avoid them?

While mistakes are a great way to learn, it's generally better to learn from the mistakes of others and not your own. Here are five costly errors to avoid.

The first is investing in "penny" stocks, which I loosely define as stocks that trade for less than $5 or aren't listed on the NYSE or NASDAQ. While there are some legitimate companies in this category, there are far too many scams (think The Wolf of Wall Street). Stay away.

The second is investing too much money in one, or just a few stocks. Investing in one stock is great when it's going up but can be a nightmare when it's doing poorly. Either spread your money out over at least five high-quality stocks, or stick to index funds.

Credit: Also in March, the company decided to consolidate its operations and announced it would be closing one of its facilities in Oregon. At the FDA's advisory committee meeting in April, news broke that the vote was seven to six against a recommended approval. Shares fell. During the company's first-quarter earnings, Sarepta reported at net loss of $52.5 million, or $1.15 per share. Sarepta's cash balance fell to $140 million. In May, the FDA stated it would not meet its May 26th PDUFA date for eteplirsen, stating it needed more time and additional data before it could make a decision. Shares soared  on the hopes that this hinted an approval was still a possibility. Shares tanked to start June after the FDA issued final guidelines regarding the compassionate use of unapproved drugs. These new guidelines require that patients who use these drugs are only charged for the cost of manufacturing the drugs, which removes a potential source of funding for the company. Just a few weeks ago, the company decided to raise $37.5 million from a secondary common stock offering. Now what:  Determining eteplirsen's chances of success is about as close to a coin flip as it gets.
Image source: Getty Images. What:  It's been a rough couple of months to be an investor in Sarepta Therapeutics (NASDAQ: SRPT) . A series of positive and negative news items have caused the company's share price to behave erratically, rising and falling by double-digits multiple times this year. The end result is that shares have fallen more than 47% since the start of the year, according to data from  S&P Global Market Intelligence . SRPT data by YCharts So what:  The roller-coaster year has been triggered by a number of important developments. Here's a list of the key news items that have driven the company's share price higher or lower in 2016: In January, a harsh report was released by an FDA advisory committee related to the company's Duchenne muscular dystrophy drug candidate eteplirsen. The report raised serious concerns about eteplirsen's efficacy and the methodology that was used to collect data during its clinical trials. Shares tanked . Later that month, bad weather caused the FDA to postpone its scheduled advisory committee meeting to discuss eteplirsen. The meeting was rescheduled for late April, and a new PDUFA decision date of May 26th was provided. In March, Sarepta's stock rocketed higher after a letter that was signed by 34 healthcare providers who specialize in DMD was posted to the University of California-Los Angeles' website. The letter urged the FDA to consider approving the drug.

The third mistake is investing in "the next big thing" rather than investing in high-quality companies. Too many people I know lost money chasing GoPro, Blue Apron or Lending Club simply because they were "cool" stocks.

Fourth, avoid investing on margin, which means borrowed money. Doing so can double your gains but can also double your potential losses.

Finally, even as an experienced investor, I never put my money into a company that I don't fully understand. The largest companies in my own portfolio — such as Realty Income, Bank of America and Apple — all have businesses that can be easily explained in a sentence or two.

More: Ask a Fool: How much should my 401(k) cost in fees?

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Matthew Frankel owns shares of AAPL, BAC and O. The Motley Fool owns shares of and recommends AAPL and GPRO. The Motley Fool has the following options: long January 2020 $150 calls on AAPL and short January 2020 $155 calls on AAPL. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content partner offering financial news, analysis and commentary designed to help people take control of their financial lives. Its content is produced independently of USA TODAY.

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