1. In the front, be conscious of your feelings
"Successful investing does not correlate with intelligence. What you need is the personality and the capacity to control the emotions that could lead other investors to invest in a risky manner. This is advice from Warren Buffett, chairman of Berkshire Hathaway and an oft-quoted investment guru and role model for investors looking for long-term, market-beating, wealth-building returns.
Before we begin, here's a bonus advice for investors: We recommend that you do not invest over 10% of your money in individual stocks. The rest should go in low-cost mutual funds which are diversifiable. Don't put money into stocks if you won't require it in five years. Buffett is a reference to those who allow their heads dictate their investment decisions, but not their hearts. Actually, excessive trading driven by emotions is among of the most frequent ways that investors can harm their own returns on portfolios.
2. Select companies with ticker symbols that are not ticker symbols.
It's easy to forget that there's an actual business behind each CNBC broadcast's stock quotes in the alphabet. Stock picking is not an abstract idea. Remember: Buying an amount of stock means you are an owner of that business.
"Remember that owning a part of a company is an owner of the company."
When you are screening prospective business partners, you'll come across a huge amount of information. It's much simpler to find the relevant information when you are a "business buyer". It's important to find out about the business's operations and competitors, its long-term perspective and whether the business will add anything to your portfolio of business.
3. Do not panic in moments of panic
Sometimes investors feel tempted by the desire to alter the way they view their stocks. But, taking quick decisions in the heat can lead investors to make classic investing mistakes like buying high and selling at a low price. Journaling can help you avoid this. When you're clear on what makes every stock worth a commitment Write down all the reasons for why. Here are a few examples:
What I'm buying Let us know what appeals to you about the company. Also, let us know the possible future opportunities. What expectations do you have? What are the most important metrics? What are the key metrics you will utilize to evaluate the performance of your company? It is possible to identify potential problems and identify which will be game-changers.
What could motivate me to sell: There are often good reasons to break up. The journal you keep should contain an investment prenup. It will explain what you'd do in order to make the shares sellable. This doesn't necessarily mean price movements, specifically not in the short-term and more so, fundamental changes to your company that impact its ability to grow long-term. Here are some scenarios: Your company loses a key customer, the CEO decides to move the business in another direction, you have an important competitor, or your investing strategy doesn't work within a reasonable amount of time.
4. Build up positions gradually
The most powerful asset of investors is their time, not timing. Investors who have the most success invest in stocks with the expectation that they will be rewarded, whether it's by dividends or share price appreciation. over time, or even for decades. This also means that you can purchase a slow-moving product. Here are three strategies for buying that will help you reduce your risk to price fluctuations:
Dollar-cost average: While it may sound complicated, this is not. Dollar-cost averaging is the process of investing a specific amount over a period of time. For example, every month or week. The set amount will buy more shares when the price of the stock falls and less when they rise, but it still equals the cost you pay. Brokerage firms online permit investors to establish an automated investing plan.
Buy in thirds It is similar to dollar-cost average. "Buying in threes" can save you from the unpleasant feeling of getting poor results right away. Divide your investment by three. Then, you can choose three points to purchase shares. They could be scheduled to be scheduled at regular intervals (e.g. quarterly, monthly) or in response to the performance of the company or events. For instance, you might purchase shares before a new product is available and then transfer the remaining portion of your money to it in the event that it is success.
The "basket": It's hard to decide which business is going to win over the long haul. You can buy every one of them! Buying a basket of stocks takes the pressure off picking "the right one." It isn't a risk to lose any player that passes your analysis, and you can also use the gains from the winner to hedge against losses. This strategy can also help you to pinpoint which one is "the one to beat" and allow you to double your position.
5. Beware of trading too much
It is recommended to check the stocks every month, whenever you get quarterly reports. It isn't easy to not keep your eyes at the scoreboard. This can cause you to overreact to short-term events. You may focus more on the price of shares than on the value of the company, and believe that you need to act when nothing is required.
When one of your stocks suffers an abrupt price increase, find out what triggered the price movement. Is collateral damage due to the market's reaction to an unrelated incident affecting your stock? Did the company's operations change? Does it have a significant impact on your long-term outlook
It is rare that news from the short-term (blaring headlines and price fluctuations) can influence the long-term performance of a well-chosen business. It is how investors respond to the noise that matters most. This is where the rational voice from a calmer time -- your investing journal -- can serve as an aid to stick it out in the inevitable downs and ups associated with the investment in stocks.