Simple lessons learnt and shared on investing in shares and equities.
1. You make money on shares when you buy
You have picked a great share that is going to perform great over the time period ahead. How come you are not making money then? You actually make your money when buying shares at a price that is undervalued or discounted to its actual value. You allow time for Mr Market & all his followers to realize it, and then realize your gains.
2. More important then when you buy is when you sell
Seemingly contradictory to above, it is actually more important to know when to sell. There are fundamentally 3 reasons to sell:-
- You made a mistake in your research and should cut your losses.
- The current price is absurdly high (i.e. 50% more than it’s fair value)
- You find a better investment at significantly better returns
3. When the market is bullish, 3/4th of shares are too.
Trends are important, even in long term investing. Knowing how the market behavior is in general lets you make better decisions. For example, if the market is on a bullish uptrend, it is more likely that a stock you choose is on an uptrend too. You are more likely to make money going long on a stock then going short during times of market bullishness. There will be of course pockets of ineffectiveness and buying opportunities.
4. Find your niche in investing
A day trader, swing trader, and long term investor all behave differently and focus on different areas of importance. There is a whole lot of information and misinformation out there. Trying to learn and do everything will cause you to get nowhere really fast and burn yourself out in the process. Like any investment, you need to know your shares investing plan. What markets and sectors are you looking at? What are your entry and exit rules?
“Cat: Where are you going?
Alice: Which way should I go?
Cat: That depends on where you are going.
Alice: I don’t know.
Cat: Then it doesn’t matter which way you go.”
~Lewis Carroll, Alice in Wonderland
5. Simplify: get the best results between time & returns
Tying in from point #4 (finding your niche), spend your time wisely on what works. You need to be disciplined to set aside time daily (preferably at the same hours) for shares investing research. Cut out what is unnecessary and just keep repeating what it is that makes you successful. Use tools and technology to help you. Develop your own simple system and rules that work.
“An ounce of practice is generally worth more than a ton of theory.”. ~Ernst F. Schumacher,
What lessons on shares investing would you like to share?