These five stock tips will help you find winners, manage emotions and keep perspective during tumultuous times.
Buying stocks isn’t hard. What’s challenging is choosing companies that consistently beat the stock market.
That’s something most people can’t do, which is why you’re on the hunt for stock tips. The below strategies will deliver tried-and-true rules and strategies for investing in the stock market. (Need to back up and learn some basics? Here’s our guide for how to buy stocks.)
One bonus investment tip before we dive in: We recommend investing no more than 10% of your portfolio in individual stocks. The rest should be in a diversified mix of low-cost index mutual funds. Money you need within the next five years shouldn’t be invested in stocks at all.
1. Check your emotions at the door
“Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.” That’s wisdom from Warren Buffett, chairman of Berkshire Hathaway and an oft-quoted investing sage and role model for investors seeking long-term, market-beating, wealth-building returns.
Buffett is referring to investors who let their heads, not their guts, drive their investing decisions. In fact, trading overactivity triggered by emotions is one of the most common ways investors hurt their own portfolio returns.
All the stock market tips that follow can help investors cultivate the temperament required for long-term success.
Buying stocks isn’t hard. What’s challenging is choosing companies that consistently beat the stock market.
That’s something most people can’t do, which is why you’re on the hunt for stock tips. The below strategies will deliver tried-and-true rules and strategies for investing in the stock market. (Need to back up and learn some basics? Here’s our guide for how to buy stocks.)
One bonus investment tip before we dive in: We recommend investing no more than 10% of your portfolio in individual stocks. The rest should be in a diversified mix of low-cost index mutual funds. Money you need within the next five years shouldn’t be invested in stocks at all.
1. Check your emotions at the door
“Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.” That’s wisdom from Warren Buffett, chairman of Berkshire Hathaway and an oft-quoted investing sage and role model for investors seeking long-term, market-beating, wealth-building returns.
Buffett is referring to investors who let their heads, not their guts, drive their investing decisions. In fact, trading overactivity triggered by emotions is one of the most common ways investors hurt their own portfolio returns.
All the stock market tips that follow can help investors cultivate the temperament required for long-term success.
2. Pick companies, not ticker symbols
It’s easy to forget that behind the alphabet soup of stock quotes crawling along the bottom of every CNBC broadcast is an actual business. But don’t let stock picking become an abstract concept. Remember: Buying a share of a company’s stock makes you a part owner of that business.
You’ll come across an overwhelming amount of information as you screen potential business partners. But it’s easier to home in on the right stuff when wearing a “business buyer” hat. You want to know how this company operates, its place in the overall industry, its competitors, its long-term prospects and whether it brings something new to the portfolio of businesses you already own.
3. Plan ahead for panicky times
All investors are sometimes tempted to change their relationship statuses with their stocks. But making heat-of-the-moment decisions can lead to the classic investing gaffe: buying high and selling low.
Here’s where journaling helps. (That’s right, investor: journaling. Chamomile tea is a nice touch, but it’s completely optional.)
Write down what makes every stock in your portfolio worthy of a commitment and, while your head is clear, the circumstances that would justify a breakup. For example:
Why I’m buying: Spell out what you find attractive about the company and the opportunity you see for the future. What are your expectations? What metrics matter most and what milestones will you use to judge the company’s progress? Catalog the potential pitfalls and mark which ones would be game-changers and which would be signs of a temporary setback.
What would make me sell: Sometimes there are good reasons to split up. For this part of your journal, compose an investing prenup that spells out what would drive you to sell the stock. We’re not talking about stock price movement, especially not short term, but fundamental changes to the business that affect its ability to grow over the long term. Some examples: The company loses a major customer, the CEO’s successor starts taking the business in a different direction, a major viable competitor emerges, or your investing thesis doesn’t pan out after a reasonable period of time.
Original Article Published Here: 5 Essential Tips for Investing in Stocks
