There may be an exception to every rule, but there are several investing principles that are tough to dispute. Here are 10 that should help investors enjoy long-term success.
- Sell the losers and let the winners ride. Let losers go before their value completely plummets. Of course, it’s tough to know which suffering stocks will turn around and which ones won’t.
- Don’t chase a hot tip. Let your own research and analysis guide your stock purchases, not someone else’s.
- Don’t sweat the small stuff. Short-term movements should not prompt panic because short-term volatility is inevitable. A quality investment will persevere.
- Don’t overemphasize the P/E ratio, which compares a company’s share price to its earnings per share. It should be used within the proper context, and in conjunction with other analytical processes.
- Resist the lure of penny stocks. A lousy Rs. 5 company has just as much risk as a lousy Rs. 75 company. Remember, companies with lower share prices face fewer regulations.
- Pick a strategy and stick with it. For example, Warren Buffett’s value-oriented strategy prevented him from getting sucked into tech startups in the late 90s.
- Focus on the future. Base decisions on potential rather than the past.
- Adopt a long-term perspective. Embracing the long-term horizon and dismissing the “get in, get out and make a killing” mentality is a must for any investor.
- Be open-minded. Many good investments are not household names. But many of them have the potential to turn into blue chips.
- Keep taxes in mind, but don’t worry. While investors should always try to minimize tax impacts, it’s rare when tax considerations dictate an investment decision.