Tips for Successful Long Term Investor

Investing is an art that anyone can learn. The difference between an investor and a trader is a lot more sensitive. But the basic difference is that an investor tends to have a longer-term perspective. Many follow analysts and a financial adviser, but they can only take you so far. They can recommend, but the best fit for you will come from making your own choices. There are some basic guidelines & rules that investors and traders across the country should follow, after all it is your hard earned money and it should be channeled wisely.

Rules to help you become a successful Long Term Investor;

1.      Your success at trading depends on your knowledge of markets. Learning to invest doesn’t happen overnight. Try to learn from the very scratch, and don’t consider yourself as an expert even if you know better the others.

2.      Take a long-term view on investing in stocks, this is the fundamental rule. You cannot hope to make money even in quality stocks invested in less than 2-3 years. Normally, a holding period of 4-5 year is what you need to be prepared for.

3.      Concentrate on a few high-quality stocks. There’s no need to own twenty or more stocks.

4.      Do your homework on the stock. There is really no alternative to solid research. Understand the business the company operates in and its prospects. Know the entry barriers and understand the competition.

5.      It is OK to be wrong but it is bad to stay wrong. It is normal for many investors to hold on to stocks where price movements go against you. That is not a very wise thing to do because idle money has a cost. Most investors, even the best among them, get a good number of their investment ideas wrong. The idea is not to fall in love with a stock.

6.      Averaging your positions is something best avoided. If you bought a stock and the price went down by 10%, the normal tendency is to buy more of the same stock to reduce the average cost. Firstly, you were wrong the first time and by averaging you are being doubly wrong. Secondly, you are increasing your exposure to one stock inordinately.

7.      Keep an audit trail of your trades. The best insights into successful investing are available when you look back and analyze your own trades. An investor has to be extremely willing to learn from his own mistakes and taking remedial action in the future.

8.      Don’t concentrate your portfolio on a handful of stories. You may rightly believe that auto industry could outperform in the next 5 years. But allocating 80% of your portfolio to auto defeats the basic grain of diversification. You need to spread your risk.

Investors should use their own judgment before investing in stocks. This skill can be learnt over a period of time. It is like planting a seed and watering it over the years for the plant to grow into a tree. It needs time and patience for the fruits to be harvested.