You don’t have to be some super computer or grand chess master to be successful
at chess, but what you do have to do is plan your moves ahead. The same applies
to investing in the stock market. You need to have a sound strategy. And absent
some sudden unexpected move, you need to stick to your plan.
Picking stocks is fundamentally a personal decision, and there are about as many
ways to pick stocks as there are people consuming oxygen. You have to educate
yourself, or find help, regarding the various styles and methods and tailor your
strategy to your objectives. Find a strategy that makes sense to you.
An individual who bounces between stock strategies will probably experience the
worst, rather than the best, that each has to offer. By constantly moving and
withdrawing your stock chess pieces, the investment will lack the direction to
help push through to success.
By constantly switching, you are effectively using a market-timing strategy which
is the most difficult and least successful method of investing for most people.
Look at Warren Buffet’s conduct during the dotcom craze. He admittedly
did not understand what was fueling the market and refused to deviate from his
decades-proven value-oriented strategy despite enormous pressure from his investors
and heckling from the media. In the end, his determination to stay focused allowed
him to avoid stocks that ended up worthless.
You don’t need to force all your investments into one strategy you can
use multiple strategies but don’t commingle between them. Remember, there
are various avenues to successful investing and no one strategy is inherently
better than any other—find what makes sense to you and stick with it.
- Use Reliable Intelligence
- No one can perfectly predict the behavior of a stock. There is no such thing
as a sure thing, despite what your brother-in-law, neighbor, co-worker, or
broker might say. For most investors, chasing tips is a sure way to lose money—a
lot of money. When you make an investment in a company, you must know what
you are investing in. Do your own research and analysis, or ask for help before
you even consider any type of position. Look at various sources to see if they
are consistent. Acting on something you heard or were told is blindfolded investing.
Tips may pan out but the odds are about the same as being struck by lightening.
Say for example you are soundly invested in stock XYZ (not real) and after
a cocktail party where some smartly-dressed-fellow tells you about the wonderful
outlook for ZYX (another fake stock) you go home and immediately sell out so
you can buy off this tip. Is that smart? Is that acting according to the best
information? No, this is speculation not investment this is why many people
look at investing as gambling. They blindly move. Sound investing is based
on sound and smart information.
Acting blindly on tips will never make you an informed investor—the key
to being successful in the long run.
- Organize Your Retreat
- In the words of the writer William Faulkner, you need to be ready to “kill
your darlings.” No, not the kind you think but the stocks that you hold
dear to your heart. No matter what, if a stock drops 10%, dump it. Don't hold
it a minute more because it can easily drop another 50% before you know it.
Now, I would gladly give up some potential winners to protect what I already
have during a bad stretch.
Imagine if we all had sold our stocks in early 2000 after just a 10% drop.
Honestly, if I want to take a ride I’ll ride a rollercoaster—it’s
easier on the heart
Remember, plan your attack, use reliable intelligence, and kill your darlings.
If you keep these simple concepts in your pocket you can avoid an easy checkmate
against your portfolio.