1. Take note of your feelings before leaving.
"Investing success doesn't correlate to intelligence... you have to have the ability to control the temptations that could get you in trouble when investing." Warren Buffett, chairman and CEO of Berkshire Hathaway is an example of this wisdom, and an excellent role model for investors looking for long-term, market-beating returns on their wealth building investments.
Before we begin, here's a bonus advice for investors: We recommend that you do not put more than 10% of your money in individual stocks. The remainder should be in index funds that are low-cost. Anything you'll need to have in the next five years should not be put into stocks at all. Buffett was referring to investors who allow their heads and not their guts to drive their decision-making. Trading overactivity that is triggered by emotion can be one of the main reasons investors lose their portfolio returns.
2. Choose the right companies and avoid ticker symbols
It is easy for people to overlook the fact that there's an actual business behind each CNBC broadcast's alphabet soup of stock quotes. Stock picking shouldn't be thought of as an abstract concept. Remember that purchasing shares of stock in a corporation makes you part owner of the company.
"Remember that buying shares in the company's stock is the best way to become shareholder in the company."
When you're searching for potential business partners, you'll encounter a wealth of information. It's easier to narrow down the data when you're wearing a "business buyers" costume. You'll need to find out about the business and its place in the marketplace and its competition, as well as its future prospects and whether it could add value to the business portfolio you already have.
3. Do not be afraid in times of panic
Investors are sometimes enticed to alter their views on stocks. Making decisions in the heat of the moment could lead to classic investment mistakes, such as selling high and buying high. Journaling is a helpful tool. It is possible to write down the qualities that make each of the stocks in your portfolio a worthy commitment. Then, when you are clear about your thoughts, consider whether it would be wise to end the relationship. Here are a few examples:
Why I bought: Describe what you like about the company and the opportunities you anticipate for the future. What are your goals? What milestones and metrics are the most important to you in evaluating company progress? List the possible pitfalls and mark which ones are game-changing and which would be signs of a temporary setback.
What could cause me to sell: Sometimes there are good reasons to break up. The journal you keep should include an investment agreement. It will explain what you would do to make the shares more sellable. This isn't about price movements and especially not the short term however, we're talking about fundamental changes to the business that affect its ability to grow over the long term. Examples: The business loses a major customer and the successor to the CEO starts moving the company in the opposite direction, a major competitor emerges, or your investing thesis isn't realized after some time.
4. Slowly increase positions slowly.
The most powerful asset of investors is time and not timing. The most successful investors invest in stocks because they anticipate being rewarded. This could be through dividends or price appreciation. for years or even decades. You can buy slowly and not have to hurry. Three ways to lower your risk of price volatility.
Dollar-cost average can be described as: Although this sounds complicated, it's actually not. Dollar-cost average implies that you make a commitment to a certain amount of money at regular intervals (e.g. every week or monthly). This set amount will buy more shares when the stock price drops and less shares when it goes up, but overall it is the price you pay. Online brokerages offer the option for investors to create an automated investment program.
Buy three times: "Buying in threes" is a kind of dollar cost average. It helps to avoid the dreadful feeling of not getting the desired results right from the beginning. Divide the amount you wish to invest by three and then, as the name implies you choose three different points to purchase shares. This could be regularly scheduled that include monthly or quarterly, or based on company performances or even events. For example, you could purchase shares before the release of a new product and then transfer the rest of your money to it in the event that it is profitable.
The "basket": It's hard to decide which business is going to win over the long haul. You can buy all of them! The stress of selecting the "one" stock can be eased by purchasing a variety of stocks. It isn't a risk to lose any stock that is able to pass your analysis, and you can use the profits of the winning stock as a hedge against losses. This strategy can help you to find "the one", and you can then double your position, should you need to.
5. Do not trade too much
Monitoring your stock each quarter -- for instance, when you receive quarterly reports is enough. It can be difficult to keep your eyes at the scoreboard. It's risky when you react too quickly to short-term events and to focus on company value rather than the share price.
Find out the reasons behind the stock's dramatic price swing. Is your stock suffering collateral damages due to the event? Does the business of your company have changed? Does it have a significant effect on your outlook for the future?
The noise of the moment, like the blaring headlines and price fluctuations aren't really significant to the long-term performance. It's the way investors react to the noise that is important. This is where your investment journal can be a helpful guideline to help you get through the inevitable volatility and fluctuations that come along with the investment in stocks.