What every investor needs to know
Whether you’re a wealthy investor and have been at it for years, or you’re an amateur just getting started, chances are you want to improve your investing skills to make more money. It’s true that investing is a risky business — and every mistake can cost you a pretty penny. However, when keeping several lucrative tips in mind, investing the right way can potentially make you lots of money.
So what can you do to improve your investing skills and make better decisions? Follow these steps:
Have some healthy skepticism - Just because you hear people on TV or in newspapers criticizing the market or an individual stock doesn’t mean they’re necessarily being reliable. Think of it this way: When you hear of a commentator recommending a stock, you may assume they own it and want to promote it. But when the market or a stock is being critiqued, it’s possible they’re trying to “knock stocks down in order to buy them at a lower price,” CNBC states. Because of this, it’s important to be wary of what you hear on TV or see on the Internet.
Pay attention to high fees - “Cost needs to be at the forefront of the decision-making process, they can really eat away at returns, which no one wants no matter their income level,” says Scott Keller, a principal at Truepoint Wealth Counsel. Before committing, make sure you’re well aware of any fees or taxes associated with your investment. “If they are incurring large expenses in connection with their investing, they are making a big mistake," says Warren Buffett.
Focus on the big picture - In other words, don’t sweat the small stuff. It’s inevitable that your investments experience will have short-term movements, and those may cause you to want to make knee-jerk decisions. But keep your focus on the future outcome and be confident in the quality of your investments.
Practice patience - “The secret to value investing is patience, and that's generally in short supply now,” explained Joel Greenblatt, chief investment officer and managing principal of Gotham Asset Management, in an interview with Morningstar, Inc.. “The world is becoming more institutionalized, there is more access to performance information, it's much easier to trade. So, patience is in short supply, and it really makes it much nicer for patient value investors. If value investing worked every day and every month and every year, of course, it would get arbitraged away, but it doesn't. It works over time, and it's quite irregular. But it does still work like clockwork; your clock has to be really slow.”
One way to keep your patience in check is to keep a journal of what triggers your stress. Knowing what causes you stress in relation to investing will help you recognize them as they occur.
Stick with one strategy - Sometimes investors switch off between different methods when picking their stocks. But experts say that investors should find their particular strategy and stick with it. While no one can really know whether it’s possible to predict market timing, experts say that it’s very difficult to be successful at this, and that being a market timer (someone who tries to predict the direction of the market and profit from the changes) is something investors should try to avoid.
Buy an index fund - "Buy an index fund, preferably over time, so you end up owing good businesses at a reasonable average price," offers Buffett. "You don't need to look at the prices of the stocks you own from week-to-week, or month-to-month, or even year-to-year. If you own a cross-section of American businesses, and you don't get excited (and buy) just at the very top, and if you buy in over time, you are going to do well."
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