Much of my investment strategies come from fundamental investing and value investing. I adopt strategies much like Warren Buffett not merely while he is a well known investor but simply because they take advantage sense to me.
That's the answer to successful stock investing. Don't pay attention to anyone just because you believe he's more knowledgeable available investing then you're. Rather, seek to think and analyze and read more about your personal before deciding which strategy best suits you. After you have developed your personal investment philosophy, stick to it and trust only yourself.
My Investment Philosophy
1. Do not generate losses.
As numerous people know, Warren Buffett famously put forth his two rules available investing in a humorous way in which Rule number 1 is "Never Lose money" while rule number two is " Remember rule number 1".
Capital preservation is important because a stock which has lost half its value will need to double in value before you get to in which you started. That is why you have to be extremely cautious inside your selection of stocks and that brings us to rule number 2.
2. Using a Margin of Safety
The margin of safety, simply put is a buffer that you simply put in place between what you perceive to be the need for the stock and it is price. If you'd prefer a stock to be worth 1 dollar and also you only buy it if it is price is 50cents, then your margin of safety is 50 percent.
Deciding how much margin of safety you should share with a stock varies for companies in different industries and it is another topic in itself.
In conclusion, a margin of safety factors are necessary to protect your capital in case you were wrong in your initial assessment of the stock pick. That way, even though you were wrong, you'd have purchased the stock at a much lower price then if you had not catered for any margin of safety.
3. Invest in the future
It's impossible to time the marketplace, however, many people appear to think other wise. They're buying once the stock dips slightly and hopes that in the near future they can market it for a profit. These people usually adopt a "hit and run" strategy where they're contented with making a few A hundred dollars when they make a trade. They also have a cut loss strategy where they will exit the market when the price drops beyond a certain amount within times of acquiring the stock.
The reality regarding the stocks marketplace is that real money is made in a few days. If you're frequently entering and exiting the market, most likely during the couple of days of a real rally in price, you will not be in the marketplace, thus missing out on earnings.
Investing in the future also helps you save on commissions paid to the broker, capital gain taxes and puts the strength of compounding into play. The difference between trading in the marketplace and buying in the future is significant and should not be ignored.
4. Knowing when you should sell and when not to sell
Despite the fact that I advocate investing for the long term, that doesn't mean holding on to my investments forever. After i value a stock, I already have in your mind how much the stock is worth and therefore already have an exit price in your mind. The objective of value investing is to purchase this stock at a significant discount from its value.
However, there could be times when the market is euphoric and also the cost of the stock surges way beyond things i have valued it at. At this time of time, I will reassess the organization to ascertain if I have left out any key news or factors which could be responsible for the increase in price. If my asessment of the company continues to be same, I'll sell the stock because there is no reason why I should require benefit of the insanity from the market.
It is important to not be greedy at this point of time and keep increasing the exit price you've set. Have an exit price and stay with it.
The reverse holds true also. Most people panic and 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 their value ought to be the same which implies that the stock is at a much greater discount then what you previously purchased at. In this case, you should take the opportunity to buy in more of this stock.
5. Keeping Money with you when there are no good stocks to buy
Many reasons exist for keeping cash with you when there aren't any good stocks to buy. Lots of people find it hard to do this. As soon as they've some money in hand they want to buy some stocks if they don't, they think that they are not in the market and therefore not "investing".
Also, keeping money with you allows you to capitalize on sudden dips within the stock prices due to some market fluctuations which aren't resulted from a alternation in the businesses fundamentals. In these cases, you should average down and buy much more of that stock. The scariest thing that may take place isn't having cash to average down on a purchase that has now presented a greater discount then before, due to your have to always keep all your profit the market to "feel that you're investing".