1. Be sure to check your emotions before you go
"Investing success isn't correlated with the level of intelligence... you need the ability to control the urges that can get you in trouble when investing." Warren Buffett, Chairman of Berkshire Hathaway, is an investor's guru and role model who has been quoted as saying this.
Before we jump in we'll give you a advice. We suggest not putting more than 10 percent of your portfolio in individual stocks. The rest should be invested in low-cost index funds. The money you'll need in the next five years shouldn't be put into stocks at all. Buffett refers to investors who let their heads dictate their investing decisions, and not their heart. Overactive trading that is driven by emotions could be among the most common ways investors ruin their portfolio returns.
2. Select companies, not ticker icons
It's easy to overlook that beneath the alphabet soup of stocks that are crawling along the bottom every CNBC broadcast is a legitimate company. Stock picking is not just an abstract notion. Don't forgetthat holding an interest in a company's stock is a way to become a part of the business.
"Remember: Buying shares of an investment company is similar to becoming an owner in that particular business."
While you're screening potential business partners, you'll come across lots of data. You can make it easier to narrow down the information when you're wearing a "business buyers" cap. You'll need to find out about the company and its place in the marketplace, its competitors, the long-term outlook, and whether it could enhance the value of your business portfolio you already have.
3. Don't panic during times of panic
Investors are often tempted to change their stock-to-stock relationship. Making decisions in the midst of a crisis could lead to classic investment mistakes: selling high and buying high. Journaling is a great tool. Keep track of what you think makes each stock worthwhile and write down any circumstances which could be reason enough to keep them separate. You can take this as an example.
What I'm buying: Let us know what you think is appealing about the business. And what future possibilities you envision. What are your goals? What are your most important metrics? which milestones do you intend to use to judge the progress of the business? Review the risks and mark which ones would be game-changers and which are signs of a temporary setback.
What makes me want to sell: There may be a valid reason to decide to sell. It is possible to create an investing Prenup to explain the reasons behind selling the stock. We aren't talking about stock price fluctuations and especially not in the short term. But, we're discussing fundamental changes to the business that will affect the company's ability to grow and its potential over the long term. There are a few examples: Your investing thesis is not realized after an acceptable time, the CEO is unable to win a crucial customer, or the successor to the CEO takes the company in the opposite direction.
4. Start building up your positions gradually.
An investor's superpower is their timing, not the time. Stocks are bought by most successful investors because they expect to receive rewards -- such as dividends, share price appreciation and so on. -- over years or even years. This allows you to take your time when buying. Here are three strategies to minimize the risk of price volatility.
Dollar-cost average sounds complicated, it is actually quite simple. Dollar-cost averaging refers to investing a set amount of money at regular intervals such as once per month or weekly. It buys more shares in times of declining stock prices and less shares in times when it increases, but it is also the same as the price you pay. Certain brokerage companies online permit investors to create an automated investment plan.
Thirds buy in: Like dollar-cost-averaging "buying in thirds" can help to avoid the traumatic experience of unsatisfactory results right out of the gate. Divide the amount of money you'd like to invest by three. Choose three points from which you will purchase shares. They can be purchased regularly scheduled (e.g. monthly, quarterly or quarterly) or depending on company performance or events. For instance, you might purchase shares before a new product is available and then transfer the remaining portion of your cash to it when it's profitable.
The "basket": It's hard to decide which business will prevail in the long run. You can buy all of them! Get a selection of stocks to relieve the pressure of finding "the the one". You will not lose out on any stock that is able to pass the test of your analysis. You can use the profits of the winning stock as a protection against losing. This strategy will also help you identify the company that is "the one" so you can expand your stake if desired.
5. Beware of trading that is too active.
Your stock levels should be inspected every quarter, at a minimum. It's difficult to keep track of your scoreboard. This can lead to overreacting to short-term events or events, and focusing on share prices instead of company value, and feeling that you have to take action when no action is warranted.
Find out the cause of a sudden price rise in your stock. Is your stock suffering collateral damage because of the market reacting to an unrelated event , or is it the victim? Is there any change in the business's fundamentals? This could influence the long-term outlook of your company.
The noise of the moment, like the blaring headlines and price fluctuations, is rarely significant to the long-term performance. It's how investors react that matters. This is the place where your investment journal, a calm voice that speaks to you during times of uncertainty, can assist you to stick it out through the inevitable ups and ups associated from investing in stocks.