Everyone would like to be a better investor. People get in a twist trying one method then another, only to abandon it for the next new thing. There’s an easier way – a few simple suggestions.
1. Watch your stocks, not the market
Just because the market is frothy doesn’t mean your stock is; just because it’s sinking doesn’t make your stock a bargain. Look at your company and how it’s priced before deciding to sell. Panic-selling on rising or falling prices is equally foolish.
2. Spend less time reading market opinion
It sounds counter-intuitive, but spending too much time attending to your investments can send your portfolio downhill. Experts are everywhere and most sound persuasive, but if you listen you’ll be panicked into selling too soon or buying what you shouldn’t. If you must read, read the company’s annual and quarterly reports and skip most of the opinions.
3. Get the buy right and don’t worry about the sell
Buy solid dividend-paying companies when they’re on sale and hold them until there’s a major change in their story – sometimes for a lifetime. Every time someone insists buy-and-hold is dead, it proves itself all over again.
4. Ignore market noise
Every talking head can tell you why the market moved today, and if the reasons sound flimsy it’s because they often are. In the short term the market makes little sense and moves for a million silly reasons. In the longer term, good companies reward their shareholders and their prices reflect it.
5. Diversify intelligently
Buy stocks when they’re on sale, not just to diversify – don’t buy a housing stock when the housing market is declining simply because it diversifies you. Over time, taking advantage of economic cycles, you’ll still end up diversified, but with stocks bought at bargain prices.
6. Balance profits and losses
When you need to raise cash, be careful how you sell. Selling only losers has you offloading stocks about to turn around; selling only winners leaves you with a stack of losers and a big capital gains bill. Balancing winners against losers minimises tax exposure, cleans the junk from your portfolio and lets you take some profits.
7. Don’t confuse a great company with a great stock
A profitable, low-debt, well-run company isn’t automatically a good buy if its share price has been bid up to unsustainable levels. If you like the company, wait for a temporary drop – sooner or later you’ll usually get one.
8. Take a beginning accounting class
It’s a little more work than the other tips, but learning to read a profit-and-loss statement and the fundamentals of business accounting gives you a huge advantage in judging whether a company is financially healthy.
9. Understand how markets work
Take the time to understand how markets work and how companies are valued, and you can stay calm while everyone else panics – confident that your long-term results will hold up.
General advice warning: This information is general in nature and does not take into account your objectives, financial situation or needs. Investing carries risk and past performance is not a reliable indicator of future results. Seek personalised advice from a licensed financial adviser before making any investment decision.