1. Make sure you are feeling at ease before you go
"Investing success doesn't depend on your intelligence. You must have the temperament to resist the temptations that lead other people to be in trouble. Warren Buffett (chairman of Berkshire Hathaway) is a renowned investor and mentor, who has been quoted several times as a wise individual in the pursuit of long-term wealth building and market-beating return.
Before we dive in Let's offer one suggestion. We suggest not investing greater than 10% individual stocks. The rest should be in an array of low-cost index mutual funds. The money you will need over the next five years should not be put in stocks. Buffett was talking about investors who allow their heads and not their guts drive their investment decisions. In fact those who invest too much based on emotions are among the top ways to sabotage their portfolio's performance.
2. Select companies with ticker symbols that are not ticker symbols.
It's easy to forget that in the alphabet soup of stock quotes crawling across the bottom of every CNBC broadcast is actually a business. Stock picking shouldn't be an abstract notion. Remember: Buying a share of a company's stock means you are an owner of that business.
"Remember that buying shares in a company's stock is an opportunity to become a shareholder in the company."
As you screen potential business partners, there will be a wealth of information. But, it's much easier to concentrate on most important details when you're wearing a "business buyer" hat. You'll want to know about the company and its place in the overall market and its competition, as well as its the long-term outlook, and whether it will enhance the value of your business portfolio you already have.
3. Avoid panicky situations by planning ahead
Investors may be enticed by the prospect of changing their relationship with stocks. But, taking quick decisions during a heat wave can cause investors to make typical investing mistakes like buying high and selling low. Journaling can be a powerful tool. It is possible to write down the attributes that make each of the stocks in your portfolio worth a commitment. When you're clear on your thinking, you can consider whether or not it might be wise to break up the relationship. For instance:
Why I bought: Describe what you love about the company and the opportunities you see for the future. What are your expectations? What are the most important metrics and what metrics can you use to evaluate the company? It is important to identify the potential risks and determine which are game-changers, and which ones are indicators of a temporary setback.
What would cause me to sell? The journal you keep should contain an investment prenup. It will outline what you'd do in order to make the stock saleable. This isn't about the price of stocks, especially not short term, but fundamental changes to the company which affect its capacity to expand in the long-term. You might see the following examples: Your investing thesis does not come to fruition after an acceptable time, the CEO is unable to win a major client or the successor to the CEO takes the company in an entirely different direction.
4. As you build up your positions, gradually.
Timing isn't an investor's greatest friend. Stocks are purchased by successful investors who anticipate being and be rewarded with an increase in share price and dividends. for years or even for decades. This means that you can also be patient when buying. These are three strategies to decrease price volatility:
Dollar-cost average: This might sound like a lot of work, but it's not. Dollar-cost Averaging involves investing a set amount of money over a time frame like each week or every month. It allows you to buy more shares at periods of decline in the price and less shares when the price rises, however it is also the same as the average price you will pay. Some online brokerage firms let investors set up an automated investment plan.
Buy in thirds It is similar to dollar-cost averaging. "Buying in threes" will help you avoid the sour feeling of receiving sloppy results straight away. Divide the amount you want to invest by three, and then like the name suggests, pick three separate points to purchase shares. These can be set to be repurchased at regular intervals (e.g. quarterly or monthly) or based purely on the company's performance. For instance, you may purchase shares prior to a new product is released and put the remaining third of your money into play in the event of successful -- or divert the remaining money elsewhere in the event that it isn't.
The "basket" The "basket": It's difficult to choose which company will prevail in the long run. Take all of them. You don't need to select "the one" when you purchase an assortment of stocks. If you purchase the basket of stocks you won't be averse to possible winners. This strategy will help you determine which firm is "the one", so you can make a move to double your stake if would like.
5. Avoid trading too much
Checking in on your stocks each quarter, for example when you get quarterly reports is plenty. It can be difficult to not keep your eyes on the board. This could cause you to overreact to short-term events. It's possible to focus more on the share price than company value and believe that you need to act when nothing is required.
Find out the cause of an unexpected price increase in one of your stocks. Is collateral damage being caused by the market's reaction to an unrelated incident affecting the value of your stock? Are there any changes in the company's underlying business? Does it have a significant effect on your long-term perspective?
In the short-term, noise like flashing headlines or price swings are not important to the performance of the company over time. It's the way that investors react to the noise that is crucial. This is where your investing journal, which is a calm voice that speaks for you in times of uncertainty, can assist you to keep going through the inevitable downs and ups that are associated with investing in stocks.