A lot of my investment strategies are derived from fundamental investing and cost investing. I adopt strategies much like Warren Buffett not merely while he is really a well known investor but simply because they take advantage sense in my experience.
That is the answer to successful stock investing. Do not listen to anyone just because you think he's more knowledgeable available investing then you are. Rather, aim to think and analyze and browse more on your own before deciding which strategy most closely fits you. Once you have developed your own investment philosophy, stick to it and trust only yourself.
My Investment Philosophy
1. Do not generate losses.
As many people know, Warren Buffett famously put forth his two rules in stock investing in a humorous way in which Rule number 1 is "Never Lose money" while rule number 2 is " Remember rule number 1".
Capital preservation is important because a stock that has lost half its value will need to double in value before getting back to in which you started. That is why you must be extremely cautious inside your selection of stocks and that brings us to rule number 2.
2. Having a Margin of Safety
The margin of safety, simply put is really a buffer that you simply put in place between that which you perceive to become the value of the stock and it is price. If you value a regular to be worth 1 dollar and also you only buy it if its price is 50cents, then your margin of safety is 50 percent.
Deciding just how much margin of safety you need to give to a regular varies for companies in different industries and it is another topic in itself.
In conclusion, a margin of safety is essential to protect your capital in case you were wrong in your initial assessment of a stock pick. This way, even though you were wrong, you would have purchased the stock in a reduced price then if you had not catered for any margin of safety.
3. Invest in the future
There is no way to time the marketplace, however, many people seem to think other wise. They're buying when the stock dips slightly and hopes that in the near future they are able to market it for any profit. These people usually adopt a "hit and run" strategy where they are happy with making a few 100 dollars when they make a trade. They likewise have a cut loss strategy where they'll exit the market if the price drops beyond a certain amount within times of purchasing the stock.
The truth about the stocks market is that real money is created a few weeks. If you are frequently entering and exiting the marketplace, most likely throughout the couple of days of the real rally in price, you won't maintain the market, thus missing out on earnings.
Investing for the long term also saves you on commissions paid to the broker, capital gain taxes and puts the power of compounding into play. The main difference between trading in the marketplace and purchasing in the future is important and should not be prevented.
4. Knowing when to sell so when to not sell
Even though I advocate investing for the long term, i am not saying holding on to my investments forever. After i value a regular, I curently have in your mind how much the stock is worth and for that reason already have an exit price in mind. The objective of value investing is to purchase this stock at a significant discount from its value.
However, there might be times when the market is euphoric and also the price of the stock surges way beyond what I have valued it at. At this point of time, I'll reassess the company to ascertain if I've omitted any key news or factors that could result in the rise in price. If my asessment from the company remains the same, I'll sell the stock since there is pointless why I should require advantage of the insanity from the market.
It is important to not be greedy at this time of time and keep increasing the exit price you have set. Come with an exit price and stick to it.
Overturn holds true also. Most people panic then sell when the price drops which doesn't seem sensible. Once the price of a stock drops, look into the fundamentals again. If nothing has changed, your assessment of its value ought to be the same and this means that the stock is at an even greater discount then what you have previously purchased at. In this instance, you need to take the opportunity to buy in more of the stock.
5. Keeping Cash with you when there aren't any good stocks to buy
There are many reasons for keeping cash with you when there aren't any good stocks to purchase. Lots of people find it difficult to do this. The moment they've some cash in hand they want to buy some stocks if they do not, they think that they're not on the market and therefore not "investing".
Also, keeping money with you enables you to capitalize on sudden dips within the stock prices because of some market fluctuations which are not resulted from the change in the companies fundamentals. In these cases, you should average down and purchase much more of that stock. The scariest thing that may happen to you isn't having cash to average down on an order that has now presented a greater discount then before, because of your need to always keep all your profit the marketplace to "feel that you are investing".