Investing basics: 3 rules that helped me become a better investor
Investing basics may seem simple, but they are the foundation on which all successful investors base their decisions. Many of my best decisions were made when remembering these rules. And many of my biggest mistakes were made ignoring them.
No one’s making you swing
Warren Buffett once compared choosing investments to batting in a game of baseball, save for one key difference. There’s no rule that says you have to swing. This means I can take the time to really think over every opportunity that comes my way, and if I’m not 100% certain it’s a good bet, I don’t have to take it. This has meant I’ve missed some great investments, but there’s nothing wrong with that. There will always be more opportunities, more chances to swing. And when it comes to my hard-earned money, it’s better to play it safe.
Don’t be lazy. Do your research
It really doesn’t take much effort to learn a little about a company, and that research can be the difference between making a great investment and losing lots of money. Of course, I need to know what I’m looking for, so I ask myself:
- Does the company offer a product or a service?
- Is it expensive to run?
- Does it have a lot of competition and if so, does the company have an edge over similar companies?
- Does it have a lot of debt or large profit margins?
Most of these questions can be answered by looking at a company’s financial statements and by using a bit of common sense.
Don’t buy the news
It’s important to keep up with the news and know what’s going on in the wider world. The problem with following the news too closely is that it can cause us to invest reactively rather than proactively, leaving us always one step behind the market.
One of the biggest mistakes I ever made was buying shares in a company that had just made the news because the stock price had gone through the roof. Shortly after, the price crashed. Because I was a novice investor, I panicked and sold. The entire process just cost me money and caused me stress.
Now I do my research first and never buy a company I hear about in the news.
Investing is a marathon, not a sprint
Every single person on the planet is susceptible to the influence of two key emotions. Fear and greed.
It’s fear that makes us sell our shares when the market goes down, and greed that pushes us to buy when prices are at all-time highs. If I don’t keep these emotions in check, I might as well just burn my money.
The trick is to remember that investing is not about making money today. It’s about building wealth over the long term.
The best thing I ever did was buy shares and forget about them. Prices will fluctuate up and down in completely unpredictable ways for years, and I realised that if I spent my days watching them, I would only lose the strength of my convictions.
All investing brings with it risks but our job as investors is to manage those risks and try to stack the odds in our favour.
The post Investing basics: 3 rules that helped me become a better investor appeared first on The Motley Fool UK.
One great way to hedge our bets is with advice from qualified researchers. Finding the absolute best investment opportunities takes hours and hours of in-depth research. This can often be the difference between mediocre and astonishing returns, but most of us don’t have time to do it ourselves. That’s why thousands of people trust The Motley Fool’s Share Advisor. This fantastic newsletter informs its readers of 2 shares a month which its analysts believe have the highest potential for investors. Costing far less than the services of a financial advisor at only PENNIES per day, and backed by our 30-day refund guarantee, if you want to get that much needed market edge, sign up NOW.
5 Stocks For Trying To Build Wealth After 50
Markets around the world are reeling from the coronavirus pandemic…
And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.
But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.
Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…
You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.
That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.
Click here to claim your free copy of this special investing report now!
- The Darktrace share price is down 30% in one month! Where’s it going in 2022?
- Why the Cineworld share price crashed today
- This growth share is up 150% this year. Will it also be a winner in 2022?
- Is this penny stock a buy after a 50% plunge this year?
- Worried about retirement? Follow these 4 tips to boost your pension pot
James Reynolds has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.