Education: Four Essential Investing Rules to Always FollowNovember 12, 2018
Like most investors, one of your top goals has been to enjoy a financially secure retirement at whatever age you choose. That being the case, it stands to reason that your retirement “nest egg” should ideally generate above-market returns, often with below-market risk.
But before you rush off to buy a stock, there are rules to understand.
Rule No. 1 – An Educated Investor is a Successful Investor
No one has as much interest as you do in seeing your money grow. Your best strategy is to educate yourself about the investing process, so you can make intelligent decisions. You don’t buy a house without checking it out. Why buy a stock when you know nothing about the company? Becoming educated greatly increases your success. In addition, you have the satisfaction of making your own investment decisions, not relying on someone else.
Rule No. 2 – Be Confident in a Great Company
“Be so confident that you now own a great company that — even if the stock price goes down — you don’t worry and you stay with it until it goes back up, and, ideally, you never sell,” notes CNBC. In short, find a solid company – that even if it does drop or run – you ideally want to hold for the next 10 years or so.
The key main factor affecting the direction of a company’s stock movement is the quality of the company itself. If the company has increased its sales and earnings, the stock usually will move upward regardless of the market. You should spend the majority of your research time analyzing potential investment candidates.
Rule No. 3 – Don’t Fall Victim to Herd Mentality
A pitfall that catches most investors at one time or another is the greed/fear trap. Greed enters into the picture when an investor has made a nice profit on a stock, but hesitates to take it, believing that it will continue to rise. When the stock price starts to fall, the investor becomes afraid to sell, because he assumes it will go up again. Instead he does nothing, and watches as the stock eventually backs down to, or below, the original purchase price.
Rule No. 4 – Have Patience with Stocks
Far too many of us expect to hit it big with a single stock. While it can happen, it’s rare. It takes patience to wait for a great stock to move. But if you’ve uncovered an undiscovered gem with sizable catalysts, hold it.
In short, success is possible. Just be sure to abide by the rules, and never rush a trade.