Much of my investment opportunities come from fundamental investing and value investing. I adopt strategies much like Warren Buffett not merely because he is a well-known investor but because they take advantage sense to me.
That is the answer to successful stock investing. Don't pay attention to anyone simply because you believe he's more knowledgeable available investing then you are. Rather, aim to think and analyze and browse more about your own before deciding which strategy best suits you. After you have developed your own investment philosophy, stick to it and trust only yourself.
My Investment Philosophy
1. Do not lose money.
As numerous people already know, Warren Buffett famously put forth his two rules in stock buying a humorous way in which Rule # 1 is "Never Lose money" while rule number 2 is " Remember rule number 1".
Capital preservation is important because a stock that has lost half its value will need to double in value before getting to in which you started. That is why you must be extremely cautious in your selection of stocks which raises rule number two.
2. Having a Margin of Safety
The margin of safety, to put it simply is really a buffer that you set up between what you perceive to become the value of the stock and it is price. If you'd prefer a stock to become worth 1 dollar and you only purchase it if its price is 50cents, then your margin of safety factors are 50 percent.
Deciding just how much margin of safety you need to share with a stock varies for businesses in different industries and is another topic in itself.
In summary, a margin of safety factors are essential to protect your capital in case you were wrong inside your initial assessment of the stock pick. That way, even if you were wrong, you'd have purchased the stock at a much lower price then should you have had not catered for a margin of safety.
3. Invest in the future
It's impossible to time the market, but many people seem to think other wise. They're buying when the stock dips slightly and hopes that in the near future they are able to market it for a profit. These people usually adopt a "hit and run" strategy where they are contented with making a few 100 dollars every time they make a trade. They likewise have a cut loss strategy where they will exit the trade if the price drops beyond a specific amount within times of acquiring the stock.
The reality regarding the stocks marketplace is that real cash is made in a few days. If you are frequently entering and exiting the marketplace, most likely during the few days of the real rally in price, you won't maintain the marketplace, thus missing out on earnings.
Investing in the future also helps you save on commissions paid towards the broker, capital gain taxes and puts the strength of compounding into play. The difference between exchanging the marketplace and buying in the future is significant and should not be prevented.
4. Knowing when to sell and when to not sell
Even though I advocate investing for the long term, i am not saying holding on to my investments forever. When I value a stock, I curently have in your mind just how much the stock is worth and therefore already have an exit price in your mind. The purpose of value investing would be to purchase this stock at a significant discount from the value.
However, there could be times when the market is euphoric and also the price of the stock surges way beyond things i have valued it at. At this point of time, I'll reassess the organization to ascertain if I have left out any key news or factors that could be responsible for the increase in price. If my asessment from the company continues to be same, I'll sell the stock because there is no reason why I should not take advantage of the insanity from the market.
It is important not to be greedy at this time of time and increasing the exit price you have set. Come with an exit price and stick to it.
The reverse is true also. Many people panic then sell when the price drops and that doesn't make sense. When the cost of a stock drops, look into the fundamentals again. If nothing is different, your assessment of their value ought to be the same and this means that the stock is at a much greater discount then that which you have previously bought at. In this instance, you should take the opportunity to buy in more of the stock.
5. Keeping Money with you when there are no good stocks to buy
There are many reasons to keep cash with you when there are no good stocks to buy. Lots of people find it difficult to do this. As soon as they have some money at hand they want to buy some stocks because if they don't, they think that they're not in the market and therefore not "investing".
Also, keeping cash with you allows you to take advantage of sudden dips in the stock values because of some market fluctuations which aren't resulted from the alternation in the companies fundamentals. In these instances, you should average down and purchase much more of that stock. The worst thing that can happen to you isn't having cash to average recorded on an order which has now presented a greater discount then before, due to your need to always keep all of your money in the marketplace to "feel that you're investing".