1. Take note of your emotions when you walk out the door.
"Successful investing does not correspond with intelligence. What you need is the temperament and the capacity to control the impulses that can lead others to invest in a risky manner. Warren Buffett, chairman and CEO of Berkshire Hathaway is an example of this wisdom. He is a great role model for investors who want longevity, long-term returns that beat the market.
Before we begin Let's offer one advice. We suggest not investing in more than 10% individual stocks. The rest should be put into low-cost index mutual fund funds. You shouldn't invest in stocks if you don't need it in the next five years. Buffett stated that investors should not let their minds but their guts dictate their investment decisions. The overactive trading that is triggered by emotion, is one of the many ways investors harm their portfolio returns.
2. Select companies with ticker symbols that are not ticker symbols.
It is easy for people to overlook the fact that there's a real business behind every CNBC broadcast's stock quotes in the alphabet. Stock picking is not just an abstract idea. Keep in mind that buying shares of a company's stock is a way of becoming an of the company's ownership.
"Remember that buying shares in a company's stock is an opportunity to become a part-owner of the business."
When you're looking for potential business partners, there's many details. But, it's much easier to concentrate on most important details when you're wearing the "business buyer" cap. You'll want to know about the company as well as its place in the overall market and in the competition, future prospects and whether it will add value to the existing portfolio of businesses you have.
3. Don't panic during times of panic
Some investors are enticed by the temptation to change the value of their stocks. Making decisions in the heat of the moment could lead to classic investment mistakes: selling low and purchasing high. This is where journaling comes in handy. You can write down the qualities that make each stock that you hold worth a commitment. Then, when you are clear about your thoughts, consider whether or not it might be beneficial to end the relationship. Examples:
Why I'm buying Write down the things you like about the business and the potential opportunities you can see coming up in the future. What are your goals? What are your most important metrics? what are the key metrics you will determine the progress of the business? Review the risks and note which are game-changing and which are signs of a temporary setback.
What is the reason I should sell? Make an investment plan that explains the reason you should decide to sell the shares. We aren't talking about the fluctuation of prices and especially not in the short-term. However, we're discussing fundamental changes to the business that affect its ability and potential growth over the long term. These are some of the examples: The company loses a key client, the CEO shifts the company in a different direction, you have an important competitor, or your investment strategy doesn't work after a reasonable period of time.
4. Start building up your positions gradually.
A superpower of an investor is their timing, not the time. Investors who have the most success invest in stocks with the expectation that they will be rewarded via share price appreciation or dividends. -- over years, or even decades. It also means you can buy slow. Here are three strategies to reduce the chance of experiencing price fluctuation.
Dollar-cost average can be described as: Although this sounds complicated however, it's really not. Dollar-cost averaging is the practice of investing a specific amount at regular intervals. For example, every month or week. The money can be used to buy more shares when the price of the stock drops and less shares if it increases. In the end, it's equal to the price you pay. A few online brokerage companies allow investors to design an automated investment schedule.
Thirds buy in: Much like dollar-cost averaging "buying in threes" will help to avoid the traumatic experience of unsatisfactory results right out of the start. Divide the amount you invest by three. Then, you can choose three points to purchase shares. These can be set on a regular basis (e.g. quarterly or monthly) or based solely on company performance. For example: You might buy shares prior to the product's launch and invest the remaining 3 percent of your earnings towards it if it's successful or you can divert it to another source in the event that it isn't.
There is no way to choose which company in a particular sector will be the winner in the long run. Purchase all of them. You don't have to pick "the one" when you purchase a selection of stocks. Being able to hold a stake in all of the companies that you have studied ensures that you aren't in the dark if company goes under. Additionally, you can benefit from any gains of the company that is the winner to cover any losses. This strategy can help you identify which one is "the one" and you may double your position if you would like.
5. Beware of excessive trading
It's sufficient to keep an eye on your investments at least once every quarter, such as when you get quarterly reports. It can be difficult to not keep an eye on the board. This could lead to overreacting to quick changes, focusing on the share price rather than company values, and believing that you must do something even if it is not required.
Find out what caused the sudden price change in one of the stocks you own. Are you suffering collateral damage as a result? Does the business of your company have changed? Does it have a significant effect on your outlook for the future?
The long-term performance and success of a carefully selected company is not affected by the news in the short term (blagging headlines, price fluctuations). It's the way investors react to the noise that is the most important. This is the place where your investment journal, a quiet voice that can speak for you in times uncertainty, can assist you to stick it out through the inevitable ups and ups that come with stock investments.