It may be easy to buy stocks, but it is hard to choose which company you should invest with. So, if you’re looking for some tips on investing, here are the five strategies you should follow for an investment that will continuously beat the stock market.
1.Control your emotions
“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.” This is what the chairman of Berkshire Hathaway Warren Buffett advised about investing.
Buffett is pertaining to the investors that decide using their heads and not their guts. The over activity of trading is actually incited by emotions, which is one of the most common ways that investors ruin their own portfolios.
2.Avoid stock picking
Buying a company share will make you a part-owner of that business, so you should avoid making stocking picking an abstract concept. You may become overwhelmed with the information you may get from your potential business partners, but it is easier to understand all the things you needed to know, especially if you are already wearing a “business buyer hat.”
When you buy an investment, it is crucial to know how the company operates, its place in the industry, the competitors, its long-term target, and if it will bring something new to your portfolio.
Investors are sometimes tempted to change their relationship status with their stocks. This move will incite decisions that can lead to the classic investing gaffe or buying high and selling low.
From here, using a journal helps. You can write down what makes your every stock in your portfolio is worth it. It is essential that you have a clear head when you do this. You should also note the circumstances that will justify why you have to end other investments.
For example: when buying, you should list down the reasons why you find this investment worth it to buy and its potential in the future, your expectations, your judgments, the possible downfalls, and mark which will be the game changers and which will show signs of a temporary setback.
When selling, you should also write the reason why you will sell a stock. It should bear the basis for the fundamental changes to the business that will affect your ability to grow over time and not the price movement.
4.Take your time in buying
Time is an investor’s superpower. Investors buy stocks known they will be rewarded through share appreciation and dividends, among others for decades or over the years. So, it only means that they are taking time before they get their earnings. This can also be applied in buying, too.
So in buying investments, here are three strategies that will prevent you from being exposed from price volatility.
· Dollar-cost average – This means you have to invest a set amount of money at regular intervals, like once a week or month. Your set amount will buy you more shares when the stock price goes down and fewer shares when it rises. Overall, it will even out the average price you pay.
· Buy in thirds – Just like dollar-cost average, this will help you avoid the morale-crushing experience of uneven results. Here, you can divide the amount you want to invest by three and pick three separate points to buy shares. This can either be at regular intervals, like monthly or quarterly or based on performance or company events.
· Buy the basket – If you can’t decide which to buy, you can buy a basket of stocks to remove all the pressure of picking the best one. Investing in all the possible best players only mean that you will never miss out if ever one takes off. You can even use gains from the investment that will win to offset any losses.
5.Focus on company value
It is normal to check in on your stocks per quarter whenever you receive quarterly reports. But, it’s hard not to keep an eye on the scoreboard. This move can lead to overreacting to short-term events, like putting your attention on share price instead of the company value. From here, you will feel the need to do something when no action is guaranteed.
When one of your stocks experiences a sharp price movement, you need to find what triggers the move. It can be your stock becomes a victim of collateral damage as a market’s response to an unrelated event, or something has changed in the underlying business of the company.
Usually, it’s the investors’ reaction to the noise that matters when it comes to investing and not the short-term noise, like the negative headlines and price fluctuations. Focusing on company value and being calm will help you in investing stocks.
Photo Sources: Sebastian Gorka, Image Hoter, Her Campus