16 Hot Winning Tips For Stock Investing From Top Pros (Part 1)
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Stock investing could be a major component of your wealth-building plan. If it is, you'll definitely want to achieve success with your investments. You'd therefore find great value in a set of winning tips that the pros have found beneficial in making a success of their own investments. While circumstances are never exactly the same, making the replication of results fairly difficult, certain basic principles will prove valuable in most situations. The following tips are powerful principles that can advance your performance as an investor in the stock-market.
1. Understand Yourself
We're all different, think differently and react differently. Never expect that everybody will do the same thing or go in the same direction. What people will do will depend on their circumstances, behavioural bent and very importantly, their risk tolerance. To drive your personal goals, you must understand yourself and tailor your strategies and actions to be in tune. Several investor behavioural models have been developed, including this one by Bairlard, Biehl and Kaiser which classifies investors on (1) confidence: confident or anxious and (2) action orientation: careful or impetuous. Five investor types emerge: individualistic, adventurer, guardian, celebrity and straight arrow.
Individualists are careful and confident, often preferring to do it their way. Adventurers are more enterprising and venturesome, strong-willed and more disposed to risk. Celebrity investors follow the crowd and noise. Guardians are cautious, risk-averse and very protective of their investment. The 5th group is somewhere in between, sharing the attributes.
What's important is for you to be honest with yourself and know where you fit in, as this has implications for the actions you may or may not take and strategies that may suit your disposition. You may also take a look at other models that have tried to analyse investor behaviour.
2. Decide What You Really Want
It's difficult to get far without a clear idea of what you're trying to do and a focus on well-defined goals. Consider, for instance, that some self-denial and sacrifice may be a critical success factor for achieving a significant level of investment. If there is no defined superior investment objective to drive your decisions, such sacrifice may be difficult. Reason: there are always enough outlets for immediate gratification to drain your income. Do you have a time horison (say 25 years to chosen retirement date)? Is there a value target (as to how much you seek to accumulate)? What other investment options do you plan to drive? If you ask yourself critical questions and define your expectations and how to pursue them, you will be setting the tone for a focused investment effort. That highly raises your chances of success.
3. Focus Early On Building Knowledge And Insight
No matter whose services you engage or whose skills you draw from, nobody will in the end love you more than you do. That means you need to be in the driving seat, as much as possible. Even when you use a stockbroker or other investment expert, you need the capacity to evaluate the results you are getting. That requires some knowledge on your part. If you are fair to yourself, you'll know that you can't escape it (and you don't need to). So, start early to acquire relevant knowledge (investment education, if you like). Your best sources: friends and mentors, investment books, financial newspapers or magazines, financial web sites, relevant programmes on radio and TV, specialised financial publications and many more. If you plan to invest a significant part of your earnings, it's only sensible to learn a few things to help you understand the process, irrespective of who you engage to manage it.
4. Decide Early On A Strategy To Work With
You see, all investors are not doing exactly the same thing. We've earlier alluded to differences in investor behaviour and strategy. Even the known most successful investors (the Warren Buffets and Peter Lynchs) did not all apply the same strategy to succeed. Each player found his niche and made the best of it. If you will try to do exactly what everybody is on to, you'll be torn in different directions, a recipe for crises. Some investors want a tidy portfolio of say ten stocks which they can give close attention to. Others want to spread to a more broad-based size of say, fifty, while others still want some bit of everything. Where do you fit in? Some investors go for value stocks considered to be undervalued, others focus more on growth stocks. There are those who make a kill from the so-called penny (low-priced) stocks while some are more interested in large-cap stocks. Some investors are active traders, speculating on prices and selling relatively frequently. There are buy-and-hold investors who dig in for the long-term. There are always arguments to support a particular strategy and most have produced good results for those who master them. It's also not forbidden to adopt more than one or to test approaches and learn from experience. But try early to take a focused approach.
5. It Pays To Start Logging Up in Good Time
Unless you have massive resources to plough in, your investment needs time to attain critical mass. The good news is that if you invest well and give it time to blossom, you will reap a good harvest. Time is an ally of investment and helps it produce results that are sometimes amazing. Start as early as you begin to generate income and make a habit of throwing in everything you can muster, but with a commitment to a regular minimum. If you understand what a big difference small amounts you invest now will make in the future, you will have less difficulty making the choice to defer consumption, since the opportunity cost will be obvious. Take an example: if you bought 1,000 units of Oando (then Unipetrol) in 1991 when a privatisation phase took place, it would have cost you N2,000. By end of 2006, your holding would have grown through bonus issues to over 3,500 units. If you ignore other benefits shareholders enjoyed in the period (dividends, rights offers, etc), your holding would have been worth close to N350,000. This is just for a shareholder who bought and held the stock without playing the market. And what if you bought 10,000 units or more?
6. Build A Diversified Portfolio
Risk is inherent in the business, but that's what separates successful investors from those who lack the spine to try. There's the risk that money could be lost in the market, but various tools are available to help you tame the risk. One such tool is the use of a diversified portfolio which works to achieve low correlation of returns of the investments, thus minimising portfolio risk. You need to develop a diversified investment portfolio as one hedge against risk. If you need help to do this, your stockbroker should be able to help.
7. See Yourself As Buying Into A Company
It's easy to be lured into viewing stocks as a mere item of trade and concentrating on price movements, chasing short-term profit opportunities. It's possible to make short-term speculative profit on the market and that's what stock traders aim for. However, you may not have the skill, active involvement and resources that full trading requires. That is why an approach that focuses on the market and not the underlying performance and value of the company is unlikely to serve your long-term objective. You need to see yourself as buying into a business. That requires that you pay attention to the fundamentals and future prospects of the company to be sure you're buying value. Factors like market share, product performance, product development or capacity expansion, earnings margin and its sustainability, cash flow and performance trend, will become more important. That means too that you have to research and evaluate the companies you invest in. If you buy for value, it is difficult to be too wrong in the long-term.
8. You Need To Focus On The Future
A lot of investors are reactive. They see prices going up and they jump in, sometimes even late. It's better than doing nothing you'll possibly say. The problem is that those who will make the kill would have since positioned for it, which is why the price has shot up, anyway. Yes, those who win big get to see and know things before the entire market is abuzz with them. If you wait to only act from the reactions of the market, you'll be acting late most of the time. To be very successful, you've got to see things before they happen or become everybody's knowledge. How do you do this? Focus on the future, search out relevant information on impending developments, take a long-term view of your investment and research the current and future earnings capacity and other performance metrics of target companies, relate to what happens in the economy or industry. Example: The price of WAPCO has shot up over 300% in the last year due to very improved financial results. Did it just happen? Certainly not. There were pointers: commissioning of modernised Ewekoro plant, financial re-engineering to offload debt, impending ban on imported cement, etc. As an investor, did your foresee the impact of these measures?
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