Stocks: Five Market Mistakes to Avoid

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Politics and current events tend to spark emotions, which are a poor guide for long-term investing, Medland says. "What's going on in the headlines doesn't predict what is happening in the markets," he says.

However, one political fact investors should be aware of is the likelihood of higher taxes for wealthier Americans. Though it's hard to know when and how much rates will increase, good financial advice can help taxpayers minimize their tax bills in some cases. For example, Americans might take investment gains now, while capital gains rates are still relatively low.

4. Don't Disregard Quality
Since March, the lowest-quality companies have had the best-performing stocks. Punished in the depths of the financial crisis, they have rebounded on hopes of a recovery. For example, banks, industrial firms, or very small companies—i.e., risky firms highly influenced by the financial crisis and the recession—have seen their shares double or triple in price.

Meanwhile, companies with stable, consistent businesses have often languished in the stock market.

Don't expect that trend to continue. In fact, the trend may have already ended.

Consider the firms that have done best over the last 12 months in boosting revenue. According to Capital IQ, the top 100 revenue-raisers in the S&P 500 are up a median of 50.3% since the March low, while the firms with the 100 worst 12-month sales-growth records have rocketed higher by a median of 96.7%.

In the last month, though, the performance between the two groups began evening out, and in the past week the trend has reversed entirely. In the first week of November, the median quality firm is up 0.6%, while the median worst firm is actually down 0.2%.

John Merrill, chief investment officer at Tanglewood Wealth Management, says the shift may be the result of a new kind of investor entering the market. These stock managers have been cautious for months, but now they believe they need to start buying. Still wary of risk, "They're going to take the safest step into the market," Merrill says.

Firms with strong fundamentals also can be more resilient long-term bets and may be selling at cheaper prices after the recent rally, Sutherland says. "There are a lot of quality companies selling at great prices," he says.

The same may be true in the bond market. Porter warns against buying high-yielding junk bonds after an "incredible run" for the risky investments.

5. Don't Forget What You Learned
The sudden drop in stocks in 2008 and early 2009 taught every investor what can go wrong. Financial experts say these lessons shouldn't be forgotten, even amid a stock market rally.

"People should always be thinking about those worst-case scenarios," says Medland. The biggest mistake in a crisis, he says, is to not have a plan in advance.

The crisis also taught investors something about themselves, about their ability to invest for the long-term without selling low and buying high.

If you panicked in March and sold all your stock, you've lost out on big gains. If you're susceptible to such investing mistakes in times of crisis, maybe you should pursue a more conservative strategy, Elser says.

"People who jump in and out of the market probably shouldn't be in the market," Elser says. "You either have that tolerance for volatility or you don't."

For many investors, "one lesson is maybe they took on too much risk," Benningfield says.

Against the backdrop of a tough job market, investors are desperate for returns from their investments. They're still smarting from huge holes in their portfolio caused by the market meltdown. But it's important to remember: If you lost big on risky investments in 2008 and early 2009, the solution is not to take on even more risk in an attempt to win back your losses.

Steverman is a reporter for BusinessWeek's Investing channel.

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