9 Tips For Successful Long-Term Investing
Uncertainty is the primary characteristic of the stock market. However, there are some principles that can guide investors into understanding which way to go in order to increase their chances for long-term success. Each investor should know these crucial concepts in order to earn big money from stocks and investments.
Some investors decide to sell their appreciated investments and lock in profits. By doing so they hold onto underperforming stocks and hope that they will rebound with time. But, counting on it is very uncertain. Good stocks can rebound further, while bad stocks might lose their value completely.
That’s why, if you want to be a smart investor, you should reflect upon these principles. Once you digest and accept them, it will be much easier to navigate your investing decisions.
Here we’re talking about the investments that increased tenfold in value. Peter Lynch named these investments as “tenbaggers”. Namely, he said that his success was based on a small number of “tenbaggers” stocks in his portfolio.
However, the hard part of it is having enough discipline to hang onto stocks even after they have already increased by many multiples. But also you need to analyze if the stock still has significant upside potential. Don’t cling to arbitrary rules, and analyze a stock for its own merits.
2. Sell A Loser
You have to be realistic about poorly-performing investments. When a stock experiences a protracted decline, there’s no guarantee that it will rebound after it. Don’t let selling off “loser” investments make you feel like you failed.
It’s normal to make mistakes, but it’s crucial to be able to recognize them in time. Judge the company on its own merits and determine whether the price justifies its future potential.
3. Forget About Hot Tips
When you get into investment, you will have plenty of sources of “hot tips”. Always rely on your own analysis of the company and never invest your money merely on a stock tip. Although these tips may sometimes give you a quick boost of money, long-term success is still based on in-depth research and understanding of the stock market.
4. Don’t Sweat The Small Stuff
Always track an investment’s long-term trajectory. Don’t let short-term movements get you swayed, and have confidence in your own research. If you really did your research well, your investment should be a success in big-picture scales such as years or even decades, not in short-term periods of time.
5. Don’t Place Too Much Emphasis On A Single Metric
A lot of investors look primarily for price-earning ratios. But placing so much importance on a single metric is not recommended. These ratios can give you good insight and more information only when combined with other metrics. So, a low price-earning ratio doesn’t necessarily mean that the investment is poor. Also, a high price-earning ratio alone doesn’t mean that the company is going to be a huge success.
6. Skip the Lure Of Penny Stocks
There’s less to lose with low-priced stocks, right? Actually, no. That’s the mistake most people make when starting their investment journey. Low-price stocks carry more downside risk than higher-priced stocks because they are often less regulated.
7. Don’t Change Your Strategy
You are probably aware that there are plenty of ways and strategies to pick stocks. But that doesn’t mean you should change your approach. Don’t be a market timer, that is always a very risky territory for investors. Instead, stick to your own strategy and wait for your success.
8. Focus On The Future
Investing requires a way of thinking that includes making decisions based on presumptions on things that have yet to happen. Although data from the past might provide useful indications, it is never guaranteed that it would work. If you adopt a long-term perspective your chances of achieving greater success will be much bigger.
In fact, Peter Lynch stated in his book “One Up on Wall Street”: “If I’d bothered to ask myself, ‘How can this stock go any higher?’ I would have never bought Subaru after it already went up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that.” What he did was focus on the future potential of the company.
9. Open Your Mind To New Ways Of Thinking
Not all good investments are brands you’ve heard of, many of them lack brand awareness. Also, some of these small companies will eventually become the big brand names of tomorrow. In fact, stocks of small companies have shown greater returns than big brand names in the past.
However, that doesn’t mean your entire portfolio should be devoted to small-cap stocks, but you have to stay open-minded in order to find great small companies that are full of potential and out of the Dow Jones Industrial Average (DJIA).