1. Take note of your emotions as you head to the door
"Investing success is not dependent on your intelligence. You need to have the temperament to resist the temptations that lead other people to be in trouble. Warren Buffett, chairman and CEO of Berkshire Hathaway is an example of this wisdom, and a great role model for investors who want long-term, market-beating returns on their wealth building investments.
Before we begin the market, here's a bonus investment tip. We recommend that no more than 10% should be put into individual stocks. The rest should go in low-cost mutual funds that are diversified. Anything you'll need to have in the next five years should not be put into stocks at all. Buffett was talking about investors who allow their heads , not their guts drive their investment decisions. Trading overactivity that is triggered by emotions could be one of the main ways that investors can ruin their portfolio's returns.
2. Choose the right companies, not ticker symbols
It is easy to overlook the fact that the stock alphabet soup quote crawling at the bottom of each CNBC broadcast actually represents a business. Stock picking shouldn't be just an abstract idea. You are a part-owner of the business if you purchase a share of the company's stock.
"Remember buying shares in an investment company is similar to becoming an owner in the company in question."
When you're looking for prospective business partners, you'll come across a lot of information. You can make it easier to filter the data when you're wearing the "business buyers" costume. You must know how the company operates and where it's in the market, who its competitors are as well as what its long-term goals are and whether it will add value to the current businesses you have.
3. Make plans for panic-inducing times
Investors are often enticed by the prospect of alter their stock relationship. The classic investing error of buying high and selling cheap is a common mistake to make when you're stressed. This is where journaling can help. Note down what makes each investment worthy of commitment. Once you have this information, write down the factors that justify a split. Here are a few examples:
Why I boughtit: Explain what you love about the company and the opportunities you anticipate for the future. What are your goals? What metrics are most important and what milestones do you utilize to evaluate the performance of your company? The potential pitfalls that could occur and how to identify them.
What is the reason I should sell? In this section, you will have to draft an investment prenup. This will explain the reasons why you want to sell the shares. This doesn't necessarily mean price movements, particularly not in the short-term and more so, fundamental changes to the business that affect its capacity to grow long-term. You might see the following examples: Your investment thesis is not realized after an acceptable time, the CEO loses a crucial customer or the successor to the CEO moves the company in a different direction.
4. Slowly build up positions
The most valuable asset of an investor is the ability to invest at a time, not by timing. Stocks are bought by most successful investors since they anticipate receiving a reward -- through dividends, price appreciation for shares, and dividends, etc. over time, or even for decades. It also means you are able to buy slow. Three buying strategies that reduce your exposure to price volatility:
Dollar-cost average: While it seems complicated, it's really quite easy. Dollar-cost averaging entails investing a specific amount of money at regular intervals like once a month or once a week. Although this allows you to buy more shares when the stock market is lower or lower, and less shares when it rises, it will still allow investors to purchase the same average cost. Online brokerages allow investors to create an automated investing plan.
Buy In Thirds: Similar to dollar cost Averaging, "buying In Thirds" will help you avoid the negative experience of getting bad results immediately. Divide the amount you wish to invest by 3, and then select three points to buy shares. They can be scheduled on a regular basis (e.g. quarterly or monthly) or based solely on company performance. You could buy shares to anticipate the product's launch, and make use of the remainder to divert money from other sources when it's successful.
Buy "the Basket" Unsure of which businesses will be long-term winners in the particular industry? All stocks are great! You don't have to pick "the one" when you purchase an assortment of stocks. By buying a basket of stocks, you won't be averse to potential winners. This strategy could be used to pinpoint the "one" business to increase your stake in the event of a need.
5. Do not engage in excessive activity.
It is a good idea to examine your stocks at least once a quarter. This includes the quarterly reports you receive. It can be hard to not keep an eye at the scoreboard. This can result in reacting too quickly to the latest news, focusing on share price instead of value for the company and feeling the need to take action even though there is no need.
Find out the reasons your stock has dramatic price changes. Is your stock affected by collateral damages? Are there any changes in the company's underlying business? It could affect the long-term outlook of your company.
Very rarely is the noise of the moment (blaring headlines, temporary price fluctuations) important to how a carefully selected company does in the long run. How investors respond to noise is what really matters. Here's where that rational voice from a calmer time -- your investing journal -could serve as a guide to sticking it out in the inevitable downs and ups that come with investing in stocks.