Fifteen favourite fallacies

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9. "I missed that one, I'll catch the next one"

This is on Peter Lynch's list of "The Twelve Silliest Things Investors Say" and in One Up on Wall Street he tells a story about making this mistake himself. When he was a fund manager in Boston, he liked eating the gourmet sandwiches served by a local deli called J Bildner and Sons, so when they announced a flotation, he bought some shares for his fund.

He believed that it was set to become "the next Taco Bell", a hugely successful US chain of Tex-Mex fast food restaurants that also has some outlets in the UK. But Bildner's first few outlets struggled. Instead of learning from its mistakes, it continued with new openings until it had spent all the money from the flotation. The shares plunged from $13 to 13 cents. Lynch sold out at losses ranging from 50-95%, commenting wryly: "Great sandwiches, though."

This is a very common error. When internet sports retailer Boo.com failed, one of the employees recalled:
"We spent money freely. It didn't matter, because we all thought we were going to be the next Microsoft."
How often have you heard that said of some brash and unproven hi-tech start-up?

"Y= the next X" usually fails to equate for two reasons. Firstly, the factors that accounted for the success of X are tough to reproduce. X's very success changes the game in its chosen business sector, or creates a whole new sector. Y and other latecomers then have to fit themselves around X, into whatever space remains in that market. That's the power of competitive advantage.

Secondly, the success of X sets everyone off in search of the next X! That gets reflected in ratings. Even if Y does well, you are unlikely to benefit from the double whammy of great earnings and a fat re-rating that buying Y would have delivered.

1. "Investing is just gambling anyway, so why not take a few chances?" 2. "You've got to speculate to accumulate" 3. "Growth always wins in the end/Value always wins in the end" 4. "Blue chips are best/Smaller companies are best" 5. "Penny shares are the best value for money" 6. "It's such a great company, I can't go wrong" 7. "But just look at the dividends" 8. "I've got to be in technology/biotechnology/telecoms etc" 9. "I missed that one, I'll catch the next one" 10. "Paper losses aren't real" 11. "I'll never go broke taking a profit" 12. "It can't possibly go any lower" 13. "It can't possibly go any higher" 14. I can't sell because of the tax bill 15. "This time it's different" 16. Conclusion

• One Up On Wall Street