It’s not very hard to buy stocks, the biggest challenge in making success in the stock market is learning how to beat the odds.
This is not something that comes naturally for most people, which is why it’s a good thing to get advice and tips from the professionals if you hope to meet great rewards. In the following article you will find a compilation of strategies, tips and pointers that anyone who has made it in the stock market has applied to their investment plans.
If you need a quick review of how the stock market works and how to buy stocks, refer to our basic guide to buying stocks, right here.
Before we jump in here are a few fundamentals to begin with. Only about 10% of your investment portfolio should be individual stocks. The rest should be diversified into a range of mutual funds. Furthermore, don’t invest any cash that you will need over the next five years into stocks.
The investing sage and chairman of Berth Hathaway, Warren Buffet, said “success in the stock markets is not about IQ, it is about the composure to control the urge to make a bad business move that everyone else is making.“ This advice has been an intrinsic component for investment strategies designed to obtain long-term, wealth-returning and market- beating returns.
What Buffet is saying here is that it is the clear mind not the gut instincts that should make the decisions in this game. One of the worst ways that an investor can harm their portfolio is by making emotionally charged decisions and trading overactivity.
The tips and pointers mentioned below can help to cultivate this cool disposition and confidence in facts that will ultimately lead to long-term success.
Don’t Lose Touch With Your Stocks
It is sometimes easy to forget that behind the alphabet soup that dances across the bottom of CNBC there are actual companies and operations at work. If you are buying stocks, this makes you an owner of the company. So don’t allow the buying and selling of stocks to become an abstract concept to you.
For this reason, you will get a better feel for the market by understanding the positions of the companies in their markets, their greatest competitors, their long-term prospects, the way in which they operate as well as what this company brings to your investment portfolio.
Plan Ahead for Panicky Times
All investors have been tempted to change their investment strategies in the heat of the moment. But this is a poor way to manage your investments and can lead to a classic blunder: selling low and buying high.
This is where keeping a journal can help you refine your strategy and hone your skills as an investor. Chamomile tea would be nice, but that’s just an option. You will want to take a note of why any investment you are planning to make is important to you and what points would justify breaking up with this stock.
Your journal should look Something like this:
Why I’m buying — describe at length exactly what you like about this company and what you see in its future. Describe what your expectations for the company are and what are the performance indicators that you will use to mark progress. Write down what you foresee are the major dangers for this company as an investment option and which you would be able to consider as setbacks and which are to be considered game changers.
What would make me sell — there will be times when a break up is the only option, so don’t get cut up about this. In this record you will write a sort of prenup that describes the conditions that you would consider too. This should not be measured in a short-term metric like the stock value, but instead it should describe a situation that would not allow the company to progress as desired. For example, the loss of a major customer, the new CEO is taking the company in a new direction, a major competitor is looming on the horizon or your plans and expectations for the company simply don’t pan out after a specific amount of time.
Build Up Positions Gradually
Time is the investor’s super power, not timing. The investor that sees positive results is the one that makes their investments because they expect to be rewarded for their investment through appreciation, dividends and so forth, this can happen over years and even decades. This means you should consider your investments with all the time you need to view the investment from every angle.
Dollar-cost average — it may sound complex, but it’s not. Dollar-cost averaging is simply investing a certain amount at regular intervals, for example once a week or twice a month and so forth. This specific amount will buy more shares when the price drops and less shares when the price rises, but in general it will even out the amount of your investment. Many brokerage firms will allow you to set up your own investment schedule.
Buy in thirds — much like the dollar-average plan, buying in threes allows you to avoid that bumpy ride you can experience when you first start off. Then you can divide the amount you are going to invest by 3 and choose three different intervals to invest. For example, this could be investing in regular intervals, or you can choose to invest before some event like a launch of a new product. You can also choose to invest according to company performance.
Buy “the basket” — if you really can’t decide the company stocks you will buy, why not just buy them all. You can buy a basket bull of all the different options. Now that you have a stake in each of the different players, you are sure to hit if one of them makes it big. And you can use the gains from one side to make up for the losses on the other if needs be. If you want someone else to do it for you then take a look at the Henderson far east income share price to get some ideas on how that could benefit you.
Avoid Trading Overactivity
You can keep your eye on your stock performance once every quarter or so, but that’s more than enough. It is difficult to keep your eye on the scoreboard and just wait to jump at the first sign of improvement, but this is not always a good idea, this can lead to reacting to short-term events and forgetting the overall game plan.
The best way to react to a sharp price fluctuation is to investigate what caused the fluctuation. Has something changed in the business or its environment? Does this thing affect the long-term outlook of the company?