Short summary of my new article “5 Tips to Successful Investing in Stocks”, published at Modest Money
Investors can use different strategies and styles to pick up stocks and build portfolio, but to become successful investor no matter what strategy you use, you have to build and follow rules that lead you to your financial goals. The financial market changes all the time, but there are basic principles that remain forever. So, based on them, let’s find out 5 tips to successful long term investing in the stock market:
- Always know why you decided to invest in particular stocks. When it comes to investments, you should always know why you are doing it and what makes you think it will give good returns. If you just got an advice from your friend or heard opinion of some analyst on TV, don’t take it. Investing and gambling are not synonyms. If you want to become a successful investor, you have to first be an informed investor.
- See the future. Before buying stocks you have to ask yourself if the product or services of the underlying company will still have demand in 5 or 10 years. You have to get picture of the future of the whole industry. How can this stocks go higher? Your next step is to get clear understanding, why among all companies in this industry the one you are going to invest, can become a leader or at least show one of the best results. If you answer on these questions, go ahead and invest. Otherwise, maybe it’s better to do more research or look into other stocks opportunities. Warren Buffet once said, ‘When I buy a stock, I think of it in terms of buying a whole company, just as if I were buying the store down the street’
- Build your investment strategy and follow it. There are many good strategies and many ways to become a successful investor, but they are all as different as investors are. First, you have to find your style and build your investment strategy based on your risk tolerance and your financial goals. For example, if you are a very conservative investor, you have to avoid tech companies and build value-oriented strategy.
- Investing is not trading. Always keep in mind big picture being an investor and don’t panic if your stocks are making correction, as it’s a good opportunity to add more shares to your portfolio. Being an investor you have to be more patient. Sometimes investors come through tough times of recession – impatient investors lose money, patient investors collect dividends, wait for good moment to add more stocks to their portfolio and as result get high ROI. But as investing as trading have the same golden rule of money management – to boost your profits you have to reinvest your profits.
- Be realistic with your expectations. Being an investor you have to calculate your risk and potential profits. For long term investors profit comes from two resources – stock price and dividends. Always calculate ROI before taking final decision about investing. Besides, we are living in turbulent times – an era of tech and scientific revolution. If with time you realize some industry that can make you higher returns, diversify your portfolio.
As in any other business to become and stay successful you need to be life time long student. “To learn new things; you might need to unlearn old thought and tricks. Both processes can never be achieved without humility.” — Ajaero Tony Martins. Learn from experience of other investors, take the best from them to build your strategy and find your own style in investing in accordance with your risk tolerance and financial goals. Maybe you will make this list of legendary investors someday.