It has always struck me as interesting that so many people are focused on how to make money in the stock market when the really important issue is how not to lose money in the stock market. As Warren Buffett has famously said, "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1." If you can just avoid the mental traps and snake-oil salesmen out there, you'll be ahead of the game. The trick is knowing what to watch out for.

Money-Loser No. 1: Trying to time the market

This is one of the all-time greatest market myths - that there are certain patterns or signals that can reliably tell you when to get into the market and when to get out. Folks, it just ain't so. Sure, you can go back and mine the data to find correlations between market performance, the signs of the zodiac, the weather and all kinds of things. In statistics, these are what are known as "spurious" relationships. In other words, while there might be a connection between two events, there's no underlying reason for the relationship, which means it's hard to put much faith in the correlation.

I mention this because on a recent episode of Bulls & Bears - a weekly financial talk show on Fox News in which I participate - market timing was a hot topic. Evidently, buying stocks Nov. 1 and selling them May 1 would have generated a much better return than buying them May 1 and selling them Nov. 1. One guest went so far as to suggest that people buy a leveraged S&P; 500 fund in their 401(k) now and sell it in May.

Now, aside from the fact that trying to roll the dice with your 401(k) is about the worst idea I can think of (would buying lottery tickets be a sensible retirement strategy?), there's no reason to arbitrarily pick two buy and sell dates based on past data. If a company you're interested in happens to be cheap in November, buy it. But why sell it May 1 just because the calendar changed?

Money-Loser No. 2: Buying what fund companies are selling

Remember all those technology and e-commerce funds launched in 1999 and 2000? Fund companies made plenty of money from them, but shareholders didn't. It's typical for lots of new funds to appear in a category right after that category has had a big run-up. In fact, we did a study last year that showed that the most popular categories for fund launches typically have poor three-year performance records right after all the new funds come out.

Recently, there have been a slew of funds launched that invest in real estate investment trusts (REITs) and municipal bonds - over 50 muni funds from just three of the larger bond shops. And you know what? Relative to stocks, REITs and bonds have some pretty attractive returns during the past several years. It's coincidental that we're suddenly seeing a rash of REIT and bond funds launched now; where were all the new REIT funds when REITs were dirt-cheap in 2000?

To be fair, this is not entirely the fault of money-grubbing fund shops, since marketing a REIT fund in 2000 would have been one tough sell to a technology-addled investing public. So you can't sling too much mud at fund shops for not launching funds when categories are cheap, as that's generally when they have awful trailing performance and investors aren't interested.

That doesn't mean you need to fall for the fund shops' pitch and buy all these brand-new income funds with sparkling three-year trailing returns - nor does it mean that REITs and bonds are about to fall off a cliff. What it means, though, is that any time someone tries to sell you a narrowly focused fund in a category that's recently been whopping the averages, be skeptical. Categories sell well at the top, which is precisely when you don't want to be a buyer.