5 tips for long-term investors that won’t ever go wrong
The stock market is a dynamic place. Nothing is permanent in this ever changing market. Neither is a bull phase permanent, nor a bear phase. How you look at it and navigate through the maze is entirely up to you. However, there are certain rules that always stand firm. No matter what, you can follow these with your eyes closed. Here are 5 such tips for long-term investors who are seeking success in the stock market:
Let go of losers, admit your mistake and let the winners stay
Investors sell off appreciated securities and reap profits, but they also hold on to certain stocks that keep declining, hoping against hope they too will rise from the slump someday. Even though the idea of holding on to your winners while selling your losers seem like a great idea in theory, it is very hard for an investor to put it into practice. For example, if you consider winning stocks, you might never know how good they could be if you sell them after you have reached your target. You might miss out on greater profits in course of time. Similarly, for a losing stock, there is no guarantee it will bounce back. So you need to be realistic about your investments and cut your losers free. It is hard to acknowledge that you made a mistake by investing in a losing stock. Yet, you should try and admit your mistake, learn from it and move on, so that you do not make the same mistake again. You have to judge companies by conducting a thorough research periodically and not let your emotions rule you, ever, in the stock market.
Don’t fall prey to herd mentality or follow ‘hot tips’
It does not matter who gives you the tip. Do not accept it without conducting your own research. When you are investing, you have to conduct your own research before venturing out to invest. You have to remember that the tip might belong to somebody else, but the cash is yours. So, you should treat it in the same way and conduct your research to find out whether it is worthwhile. By accepting such tips, you will just be opting for the easy way out. Unfortunately, the easy way doesn’t really bode well in the stock market, or anywhere at all.
Don’t worry about small stuff
This is a golden rule for long-term investors. Do not panic when your investments are getting affected by short-term movements in the stock market. A long-term investor should look at the bigger picture when they are tracking and analysing their investments. You have to be confident and have faith in your investments. You should invest wisely, choose the right securities and not get alarmed by short-term volatility which is pretty common. The gains of a long-term investor comes from a different market movement, that occurs over the span of years rather than minutes, hours and days. You should focus on developing your own investment strategy and philosophy by educating yourself more and more, because there is no limit to acquiring knowledge.
Avoid penny stocks
Penny stocks belong to companies that have lesser regulations placed on them in comparison to those that have higher priced stocks (mostly large cap). You might think that investing in a penny stock lowers your risk of loss since they are low-priced. However, if that plunges to zero, you lose everything you owned. It is better to invest in stocks of companies that are priced higher simply because they are more regulated and well researched.
Focus on the bigger picture
Whatever the length of your investment might be, it does not matter, because the toughest part about investments is the fact that you have to take an informed decision based on things that have not happened yet. You should always take your decision based on future potential rather than what has happened in the past. Adopting a long-term perspective will help you look at the bigger picture so that you can focus on your financial goals.