Investors often make the mistake of chasing last year’s best performing stocks and mutual funds. They figure that if companies like Amazon and Netflix were up 50% one year then it only makes sense that this trend would continue the next. That’s not necessarily the case. I was recently reading an article on Yahoo Finance about how the best performers in the stock market are often the previous year’s biggest losers. Stocks that are in the tank one year will rise from the ashes the next. So, how can you benefit from this trend?

Don’t be afraid to take some risk.

It may seem easier to sit on the sidelines and try to play it safe but if you want to make money investing than you need to take some risk. Most investors make the mistake of buying high and selling low. They avoid buying stocks when they are close to their 52 week low and they load up on shares when they are selling at their highs. The best investors overcome their fears and take advantage of stock market opportunities. The best opportunities often arise in the midst of the greatest crises.

You can do this too by buying quality companies when they are selling at discount prices. Use market sell offs and down days to add shares of companies that are on sale. I am not saying that you should run out and place all of your money in high beta stocks. You should however be willing to take some calculated risks to jumpstart your portfolio returns.

Don’t follow the crowd.

One of the biggest mistakes that investors make is following the crowd. Investors have a tendency to have a herd mentality. One investor follows another. Remember the dot com and real estate booms of the past 10 years. Investors continually poured money into these asset classes despite their overvalued valuations. You can avoid this problem by being willing to invest where no one else is.

Warren Buffett favors investing in companies that operate in boring industries that just make money year after year. Start making your investing list for next year by taking a look at the worst performing stocks at the end of this year. Select companies whose stock price drop is out of line with their historical earnings performance.

Don’t try to time the market’s bottom.

The stock market bottomed out in March of 2009. The only way that we know this now is by looking back at the market’s performance over the past two years. Many market prognosticators have missed great investment opportunities by unsuccessfully trying to spot the absolute bottom for the Dow and the S&P 500. It is impossible to time the stock market’s bottom.

Your best bet is to invest in the market when you feel that a particular stock is trading cheaply. Even if the stock drops further after you buy it, don’t fret. Just consider this an opportunity to buy more shares at an even lower price. It’s better to buy a stock when it is trading near the bottom than to regret never having taken the plunge.

Does this fit with your investing strategy or do you prefer to chase the previous year’s high fliers?