1. Your emotions should be checked at the door
"Success in investing doesn't have a correlation with your IQ ... the only thing is required is the ability to be able to control the desires that can lead others into trouble when investing." Warren Buffett is chairman of Berkshire Hathaway. He is an accomplished and wealthy investor who serves as a role model to investors looking for longer-term, long-term, market-beating and wealth building yields.
Before we begin, here's a bonus investment tip: We suggest that you do not invest more than 10% of your money in individual stocks. The remainder should be an diversified mix of index mutual funds with low costs. Anything you'll need to have in the next five years shouldn't be put into stocks in any way. Buffett refers to investors who let their minds drive their investment decisions, but not their heart. Overactive trading that is driven by emotions could be one of the primary ways that investors can ruin their portfolio's performance.
2. Select companies, and do not use ticker symbols
It's easy to forget that under the alphabet soup of stocks, which crawl across the bottom of every CNBC broadcast is a legitimate company. Stock picking shouldn't become an abstract idea. Remember that purchasing shares of stock of a company makes you part owner of the company.
"Remember that purchasing shares in a company's stocks creates a partial ownership of the company."
Screening potential business partners will bring you a wealth of data. If you wear the "business buyer's hat," it's easier for you to select the best options. You want to know about how the company operates as well as the competition, its long-term prospects and if it's bringing something fresh to the portfolio.
3. To avoid panic make a plan
Sometimes investors feel tempted by the urge to alter the status of their stocks. It's easy to buy high and then sell low in the midst of the moment. Journaling is a great tool. You can write down the attributes that make each of the stocks in your portfolio worth a commitment. Once you're clear on your ideas, think about whether it would be beneficial to end the relationship. Take this as an example.
Why I bought: Describe your favorite aspects of the company and what opportunities you anticipate for the future. What are you expecting? What metrics and milestones are most important to you in evaluating progress for your business? The potential pitfalls that could befall your company and how to avoid these.
What could cause me to want to sell: There may be a valid reason to end the relationship. Write an investing plan that explains the reason you should decide to sell the stock. It's not about price movements particularly not in the short-term however, we're talking about fundamental changes to the business which affect its capacity to expand over the long term. These are some of the examples: The company loses a key customer, the CEO moves the business in another direction, there is a major competitor, or your investment strategy doesn't work within a reasonable amount of period of time.
4. Positions can be built slowly
The greatest asset an investor has is the ability to invest over time, not by timing. Investors who are the most successful purchase stocks in hopes of be rewarded, whether it's through share price appreciation or dividends. for years or even decades. You can buy slowly over time, and you don't need to hurry. Three buying strategies that will help you reduce your volatility.
Dollar-cost average: This sounds complicated, but it's not. Dollar-cost averaging is the process of investing a set amount of money over a set period like once a month or every week. This amount will allow you to buy more shares if the stock market is less, and less shares when it is rising, it will still allow you to pay the same price. A few online brokerage companies allow investors to design an automated investment plan.
Buy in Thirds: Similar to dollar cost Averaging, "buying In Thirds" can help you avoid having the negative experience of getting bad outcomes right away. Divide the amount you want by three, then select three points to buy shares. They can be regular (e.g., monthly or quarterly) or dependent on company performance or events. For instance: You could buy shares prior to the launch of a new product and then invest the remaining 3 percent of your earnings towards it if it's a hit, or divert it elsewhere when it's not.
Buy "the Basket" Are you unsure of which companies will be long-term winners in the particular industry? Purchase all of them. The pressure of picking the "one" stock can be eased by buying a range of stocks. By buying a basket of stocks, you don't have to be averse to potential winners. This strategy will allow you to find "the one" and increase your stake if needed.
5. Don't trade too much
You should be checking stocks at least once per month when you receive quarterly reports. It's tough to keep an eye on the scoreboard. This could lead you to be overreactive to the smallest things. You might be focused more on the price of shares than company value and believe that you need to take action when none is required.
Discover what caused a dramatic price increase in one of your stocks. Does your stock suffer collateral damage because of the market reacting to an unrelated event or is it the one who was hit? Did something change in the underlying business of the company? Does it have a significant impact on the company's future? impacts your long-term prospects?
The noise of the moment, like the blaring headlines and price fluctuations aren't really relevant to the long-term performance. It's how investors react to noise that is important. This is where the rational voice from a calmer time -- your investing journal -could serve as a guide to sticking it out during the inevitable fluctuations and ups that accompany the investment in stocks.