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Getting the Proper Mindset to be a Good Investor
The troubled economy has made many people rethink their investment strategies. I hate to say it, but sometimes it takes a catastrophe such as the market crash to remind people about the volatility of the markets. Perhaps people should have realized that things had been too good for way too long. There are a number of basic investing tips that I remember from a long time ago that people seemed to forget.
Do not put any money into the stock market that you can not afford to lose. If you are saving money for retirement, put it in a savings account, a money market fund or into bonds. These funds will not fluctuate like the stock market and should not lose value. You may not get the great returns, but you will get interest and won’t lose everything if the markets change.
Diversify you portfolio. If you are going to invest in the stock market, choose stocks and investments that are not of the same industry. Do not focus all of your money on just one strategy. Again, look to the previous paragraph. Only put the percentage of your portfolio that you are comfortable losing in the stock market. Put the rest in bonds, and other investments. Study other people’s successful investment strategies, and learn from the one’s that fail.
Buy low sell high. This does sound like obvious advice but so many people have started trying to find the stocks that they should hold on to for the duration. This is a horrible idea. Every industry goes through booms and busts. I still remember the sage advice I was given by a dear friend of mine who told me to invest in energy companies. He said that they will never go down. He lost the majority of his money after the Enron affair. If you are investing in the stock market and you see your shares double in value in a year, sell them. You will never be able guess the pinnacle of their share price. Keep the greed to a minimum and get out when you have made some money.
Research the companies that you want to invest in. I personally look at the number of shares outstanding and compare it to the amount of cash that the companies have on hand. If a company has a million shares outstanding, five million in cash, and after a bad bit of industry news their stock plummets to a buck a share, I would probably more likely to buy their stock than a company that has seen their share price climbing for the last six months.
Finally, don’t listen to anyone who hasn’t been in the business for a long time. I remember during the tech boom ever time that I went to my bank another twenty year-old investment banker was trying to explain to me how they can help me become a millionaire. I’m sure that they all lost a bunch of other people’s money because I don’t see them employed at my bank any more.
Remember that there are tons of self-help sites that offer a lot of free advice. Do your research and follow the advice of the people that you trust. Get a good and honest advisor. If they tell you something that sounds too good to be true, walk away.