The stock market is a strange place. Rules are irrelevant, because there are exceptions all the time. Nothing is permanent and it is up to you, how you want to navigate through this maze. However, there are certain rules that always stand strong and no matter what, you can follow them with your eyes closed and your hands tied. Here are 5 such tips for long-term investors who are seeking success in the stock market:
Sell the Losers and Let the Winners Reign
Investors sell off appreciated securities and reap profits accordingly but they also hold on to certain stocks that keep declining, hoping against hope that they too will rise someday from the slump. Even though the idea of holding on to your winners while selling your losers seem like a great idea in theory, it is very hard for any investor to put it into practice. For example, if you consider winning stocks, you might never know how good they might be if you sell it after you have reached your target. You might miss out on far greater profits in course of time. Similarly, for a losing stock, there is no guarantee that it will bounce back, so you need to be realistic about your investments and cut your losers free. It is hard to acknowledge that you made a mistake by investing in a losing stock but admit your mistake, learn from it and move on so that you do not make the same mistake again. You have to judge companies by conducting a thorough research and don’t let your emotions rule you, ever, in the stock market.
Don’t Go After “Hot Tips”
It does not matter who gives you the tip. Do not accept it without conducting your own research. When you are investing, you have to conduct your own research before venturing out to invest. You have to remember that the tip might belong to somebody else but the cash that you will invest is yours. So, you should treat it in the same way and conduct your research to find out whether it is worth it or not. By accepting such tips, you will just be opting for the easy way out. Unfortunately the easy way doesn’t really bode well in the stock market, or anywhere at all.
Don’t Worry about the Small Stuff
This is a golden rule for long-term investors. Do not panic when your investments are getting affected by short-term movements in the stock market. A long-term investor should look at the bigger picture when they are tracking and analyzing their investments. You have to be confident and have faith in your investments. You should invest wisely, choose the right securities and not get alarmed by short-term volatility which is pretty common. The gains of a long-term investor like you comes from a different market movement, that occurs over the span of years rather than minutes, hours and days. You should focus on developing your own investment strategy and philosophy by educating yourself more and more because there is no limit to acquiring knowledge.
Resist the Siren’s Call: Penny Stocks
Penny stocks belong to companies that have lesser regulations placed on them in comparison to companies that have higher priced stocks. You might think that investing in a penny stock lowers your risk of loss since they are low-priced. However, if that plunges to 0, you lose everything that you owned. It is better to invest in stocks of companies that are priced higher simply because they are more regulated and well researched.
Focus on the Bigger Picture
Whatever the length of your investment might be, it does not matter, because the toughest part about investments is the fact that you have to take educated decisions based on things that have not happened yet. You should always take your decision based on future potential rather than what has happened in the past. Adopting a long-term perspective will help you look at the bigger picture so that you can focus on your financial goals.