1. At the door be conscious of your emotions
"Successful investing doesn't require intelligence... what you require is the grit and determination to control the urges of others, which can push to financial ruin." Warren Buffett, Chairman of Berkshire Hathaway, is an investor sage and role model, who is quoted as saying this.
Before we jump in we'll give you a advice. We suggest not putting more than 10 percent of your portfolio in individual stocks. The rest should go in low-cost mutual funds that are diversified. The funds you'll need within the next five years should not be put in stocks. Buffett is talking about investors who let their heads, not their guts, guide their investment decisions. In fact, trading overactivity triggered by emotions is one of the most frequently occurring ways investors hurt their own returns on portfolios.
2. Choose companies and not ticker symbols
It is easy to overlook the fact that the stock alphabet soup quote that is in the middle of every CNBC broadcast is actually a sign of business. Stock picking shouldn't be just an abstract notion. Be aware that purchasing shares of a company's stock makes you a part owner of that business.
"Remember: Buying shares of a stock company is like becoming a shareholder in the company in question."
When you're searching for potential business partners, you will come across a huge amount of data. But it's easier to home in on the right stuff when you wear a "business buyer" cap. You will want to learn about the company as well as its place in the overall market and its competition, as well as its long-term prospects, and whether it can enhance the value of your business portfolio you already have.
3. For panicky times be prepared
Some investors are enticed by the temptation to change the way they view their stocks. However, making quick decisions in the heat of the moment can lead investors to make common investment mistakes such as buying high and selling at a low price. Journaling is an excellent tool. If you're sure of the qualities that make each stock worthy of a commit, then write down all the reasons why. For instance:
What I'm buying: What do you find appealing about the business. And what future possibilities you envision. What are your expectations? What are your most important metrics? which milestones do you intend to be using to evaluate the progress of your company? List the possible pitfalls and identify which of them could be game changers and which are signs of a setback that is temporary.
What would make me sell: Sometimes there are good reasons to break up. It is possible to create an investing Prenup to justify why you are selling the shares. It's not about stock price fluctuations and especially not in the short term. However, we are talking about the fundamental changes that occur in the business that will affect its ability and potential growth in the longer term. The following are examples: Your investment thesis isn't realized within a reasonable period of times when the CEO loses a crucial client or the successor of the CEO moves the company in the opposite direction.
4. Gradually build up your positions
Timing is not the investor's greatest friend. The best investors invest in stocks because they believe they will be the reward. This could be through dividends or price appreciation. for a long time or even for years. This means that you can take your time when buying as well. Here are three buying strategies that will help you reduce your risk to price volatility:
Dollar-cost average: It may sound complicated however it's actually not. Dollar-cost averaging is the process of investing a certain amount of money at regular intervals like monthly or once a week. That set amount buys more shares when the price drops and less shares when it goes up however, overall it will give you the price you pay. Online brokerage firms allow investors to set up an automated investing plan.
Buy in thirds: Much like dollar-cost averaging "buying in threes" helps to avoid the traumatic experience of a rocky start of the start. Divide your investment by three. Then, you can choose three points to buy shares. They could be scheduled to happen regularly (e.g. monthly, quarterly) or in response to the performance of the company or events. You might, for example purchase shares prior to a product's release and then put the third portion of your investment in play to see if the product is a success. If not, you can divert the money to another source.
Buy "the basket": Can't decide which company in a particular industry will emerge as the winner over the long term? Every stock is good! Purchase a range of stocks to relieve the stress of coming across "the one". You won't lose out on any company that meets your analysis, and you can use the profits of the winning stock as a hedge against losses. This strategy can also help you to determine which company "the one to beat" and allow you to double your stake.
5. Don't trade too much
A good idea is to review your stock every quarter. This is also true the quarterly reports you receive. It's difficult to keep an eye on your scoreboard. This can lead to overreaction to short-term developments, focusing on company value instead of the share price and the feeling of having to do something regardless of whether action is required.
Discover what caused a dramatic price increase in one of your stocks. Is your stock suffering collateral damages as a result? Have you noticed a change in the business that is at the core of the company? Has it had a significant effect on your outlook for the future?
The long-term performance and success of a company that has been carefully chosen is not affected by the news in the short term (blagging headlines, price fluctuations). The way investors react to the noise is what's important. Your investment journal could serve as a useful guide to keeping calm through the inevitable fluctuations, ups and shifts that investing in stocks can bring.