Tips for Successful Investing
Do you want to start investing, but have no idea how to do it? Take a look at this article, here we give you some ideas so that investing is less complicated than it seems.
Invest in what you know… and nothing else
Companies with excess cash usually have business participation in companies of the group itself. They also invest in other companies that can provide economic returns through dividends, or the purchase and sale of shares in the financial markets.
To invest in the Stock Market, it is essential to know the evolution of a specific business sector, the profitability of a company over time, its track record, solvency, and equity balance, etc. It is even important to know the economic and fiscal regulations that affect a certain sector. We already know the enormous impact that the establishment of tariffs by the United States had on imports of products from various countries. The higher cost to sell products and services materialized in a significant drop in profits and, therefore, in their market prices.
Given the zero profitability of sight deposits, even term savings accounts, there has been greater interest in stock market investments. Unfortunately for many people, investing without training, information, or experience has not always had good financial results.
And is that novice investors are usually carried away by the impulse of the news, or by the advice of the so-called “experts”. They invest in the markets because someone close to them has told them that it is a good time to buy certain shares.
Bad investors buy shares in companies that they do not know. Nor do they usually spend a lot of time or effort researching what type of investment is best suited to their personal and family situation. Only money that is not needed in the short or medium term should be invested.
It is also important to consider personal risk tolerance. The greater the revaluation potential of an asset, the more risk it can implicitly carry.
Although it is mandatory for investment companies and financial institutions to fill out the “investor profile” report, a person may have a certain risk tolerance. But the “paper” supports everything and that discrepancy can quickly become evident in a single day of heart attack, at the level of volatility.
An investor well known for his long track record of success is Warren Buffet, who says: “Don’t invest in a business you don’t understand.”
Are the markets safe, efficient, and predictable? Certainly not. The hope of earning money in the stock market is based on speculation, in addition to the appreciation of assets. We have to take into account that:
- Markets are unpredictable and highly emotional.
- Anything can happen, because an infinite number of factors intervene in the composition of the prices of listed securities.
- The “experts” do not have better results than other people who act randomly, or intuitively, with their interventions.
- Uncertainty about potential gains – or losses – always remains over time.
- The price of a share does not correspond to its real value but to the thoughts and estimates of buyers and sellers.
- The factors “confidence” and “fear” push prices up or down.
Even with all of the above, the average return of the stock markets is much higher than that of conservative and risk-free assets, considered in periods of several years.
Fundamental analysis focuses on certain past and present data, as well as a future estimate of a company’s profitability. If you can’t reasonably understand how a company makes money and what the differentiators are in their industry with a brief explanation of your own, then don’t invest.
Of the thousands of companies listed on the exchange, we believe that no more than a few hundred companies meet basic standards for business simplicity.
It is above all very important that you feel comfortable with what you invest and that the money you allocate to the stock market is not needed in the short term. You must also be willing to emotionally support the fluctuations of the markets when there are stages, such as the one we are experiencing when there is a lot of instability and uncertainty.
Live on one income, invest the other
If you live in a household that brings in two different incomes, living on one income and investing in the other is one of the best financial decisions you can make. The reality is that there is a tendency to spend more as you earn more money. The sensible thing is to save at least 10% to 20% of monthly income, even reaching 30% as long as the earnings from work are enough to live well, without hardship.
In many cases, families can live comfortably on one income. Knowing well how money is spent, to avoid small or ant expenses, those unnecessary expenses helps to have good financial planning, the basis for saving and investing.
If you can keep the bills paid and maintain a nice lifestyle while spending the equivalent of a single income, you will be able to invest a tremendous amount of money over the years, setting yourself and your partner up for a very good retirement.
Buy businesses, not stocks
When considering buying stock in a company, it’s very helpful to think of buying the entire company. Warren Buffet advises analyzing the company as if it were a decision that will accompany you for many years.
Since you can only buy a portion of the company, approach your investment as if you were buying the whole company outright, rather than just buying shares in the company; this forces you to ask yourself the right questions.
- Is it a company worth participating in financially?
- Is it a company that you would be proud to own?
- Do the values of this company align with your person?
When looking at a company in a big way, these are the questions that can help you make better investment decisions and determine how to invest.
Diversification can be dangerous
In our opinion, individual investors reap the most benefits from diversification when they own between 20 and 60 stocks from several different industries. Although it is necessary to diversify in different business sectors, to avoid risk concentration, it is not a good investment policy.
Excessive diversification means that a portfolio is likely to be invested in several businesses that are not strong, diluting the impact of economic results in high-quality holdings.
Diversifying a portfolio of assets can be very productive when you have enough information and experience. It is very important to be clear about the market trends to periodically balance the composition of the stock portfolio. Barren Buffet used to do in-depth portfolio reviews, regularly, every five years.
Currently, with the economic crisis, volatile markets, and many sectors in clear decline, this review is constantly carried out by his team. As a consequence, it has gotten rid of large packages of shares in fragile sectors and has made investments in companies with a long business track record, proven solidity, and profitability over time.
How many shares do you own?
If the answer is over 60, you might seriously consider slimming down your portfolio to focus on higher-quality business holdings.
The best investment decision is usually “No”
Opportunities that are worth taking are less common than you might think. That does not mean that good businesses cannot be found, although the search requires effort and dedication. Finding a company that is truly worth investing in takes time, research, and patience.
With this in mind, the best investment decision is going to be to say “no” to many opportunities. It is better to be prudent with money.
If you are going to be a successful investor, you have to be comfortable with the idea of turning down companies that you think you can take a chance on. When the right opportunity comes along, get out there and take it with a lot of confidence.
Don’t feel like you have to invest all the money you have available right away. There’s nothing wrong with stopping until you find an amazing company and the right price. Have confidence in your investment decisions, experience will support you.
With these tips in mind, you can start investing with greater security, tell us, what are you waiting for to start?
