Rules to successful investing
02-14-07: In life we all live by certain codes or rules. The same goes with our investment decisions. Great investors such as Warren Buffet and Peter Lynch would not be able to achieve superior appreciation without having some rules. With that said, here are some simple rules we believed can help with your investment matters.
Select the right broker. Whether you decide to go with an online broker or a full brokerage firm, select one that fits your need. Price should not be the main reason for selecting a broker. Some online broker may charge you $4 per trade, but they might not have any tools or features to help with research
Do not panic. Keep in mind volatility is part of investing. Stocks do not go up in a 45 degree angle. Short term volatility is part of investing. Long-term appreciation is the ultimate goal. If you are unable to stomach the volatility that exists with stocks, consider bonds. As long as the stock you have picked has the capital strength to remain viable over the long-term, do not panic.
Use various methods of analysis. Use both fundamental and technical analysis in your research. There are useful elements in both school of though. Do not short change yourself by only using a single method.
Keep an eye on your investment. Some investors believe once you buy a stock, you should leave it alone. In our view, that would be a big mistake. Our approach is to buy, hold and monitor. If situation changes, you need to act quickly.
Avoid unnecessary leverage. Some investors are attracted to leverage, meaning using a small amount of capital to borrow more and invest more broadly. By buying on margin, you expose yourself to a greater risk. The market could fall, requiring you to make up larger losses than you can afford. Unless you are very experienced or have money to burn, we would suggest staying away from short selling as well.
Take profit once in awhile and reinvest profits. Let say you are up 50 percent on a position. Consider selling some and reinvesting it another stock. This will help reduce the overall risk.
Do not wander from your plan. Resist the temptation to act on hot stock or tips. Do your own research and make your own decision. There is no easy money. Take profit from now and then, but remain focus and do not deviate from our goals.
Things changes, nothing is permanent. Make sure you can react quickly if market sentiment suddenly changes. Do not fall in love with any stocks. The market will not always continue to go up so it is important to keep your eyes on market volume. Here is one way to tell if the market is about to fall. When you hear your friends, neighbors or the lady at the supermarket checkout brag about how much money she made in the stock market, this usually means the market has reached the top and is about to fall.
Be realistic. The stock market is not Las Vegas. Your stock will not likely double in days. It takes time for stocks to appreciate. Therefore, be realistic with your expectations.
