Did you watch the MythBusters TV series?

3 Myths About Stock Market Investing; Busted!

Did you watch the MythBusters TV series?

If you don’t know what I’m talking about, MythBusters is an Australian TV series where two guys do “weird” experiments busting myths. It’s astonishing to see how people genuinely believe in some of these myths, only to find out, they aren’t true.

We are biased from our society, culture, parents or friends to believe that stock market is risky, a kind of casino and only for rich people. The problem with market stock’s myths is that they are holding you back to access a wonderful wealth creation vehicle.

The stock market is a proven way to prosperity which is doing the heavy lifting for you. In fact, any wealthy person that I personally know, have money in the market stock. And the reason is simple; wealthy people are SMART with their money.

They know that investing in the stock market offer better returns than living money sitting in saving accounts, CDs or by holding bonds.

Now that I think about it, I’m guilty of procrastinating to invest in the market stock for years. I could have started in 2000 when I first get a paycheck, but I procrastinated till 2005. The result?

Hundreds of thousands of dollar in lost opportunities. My only regret is not have busted the market stock myths earlier.

That’s why in today post I’m going to bust the 3 biggest myths about stock market so you can start investing with confidence and peace of mind.

1# MYTHS – ONLY PROFESSIONALS CAN INVEST IN THE MARKET STOCK

One of the biggest myths about investing is that it’s hard and should be left to the experts.

“Oh dear”… I wish I knew any better. In my working years as Chef, I thought that market stock investing wasn’t suitable for the average person and should be handle over to professionals in the industry. I felt so scared to lose everything.

The logical next step (thinking back, not so logical) was giving my hard earned savings to a “professional” financial advisor. I prefer don’t share the amount of money I have lost, only the thought, make me sick – very sick. On the other hand, my financial planner bought a new Mercedes Benz and didn’t feel even sorry for my lost.

Over the years I’ve learned that we are responsible for managing our money. If we don’t, someone else will do for us but keeping most of the profits. Not only that, but you’re risking the capital invested whether the other party has no skin in the game.

Look, I feel your struggle in believing that you can do it, but believe me, you can.

I’m an ex-Chef, I didn’t go to university, I don’t have any investment qualifications or any fancy certificate… but today, I’m living comfortably by investing in the market stock. And I’m not the only one without a financial background to do so:

• Jay from FI Fighter – This guy is an engineer that gave up his successful career in Silicon Valley to truly experience life without the 8-5 drama. How? By investing. At the moment Jay is totally focused on investing in precious metal stocks. And let me tell you this; “He is making a hell of returns.” In 2016, he doubles his portfolio value.
• Sabeel from Road Map 2 Retire – Sabeel regularly saves part of his paycheck so he can grow his wealth by investing. He buys blue chips shares that pay regular dividends. He started in 2008 making a mere US$19 of dividend income in 2008. Last year he made US$ 9,000.

There are many regular guys out there that are investing and doing exceptionally well. Do you still think that you can’t?

Hell yeah! Investing is like any other professions. First, you learn the basics, and then you practice till you become an expert.

Man, just get started. It’s going to be an exciting journey.

2# MYTHS – DIVERSIFY OR YOU ARE GOING TO GET ROASTED

Can I be honest even if I’m going to be brutal?

This is really good advice for people who are ignorant about investing. This myth is been created by the financial industry to protect people from their own ignorance.

And it goes along these lines:

• Diversify to minimize risks.
• Diversify and hold your portfolio for the long term.
• Play it safe, diversify.
• Diversify by your age; % of stocks and % of bonds. The older you get, the more bonds you should hold.

I don’t say that diversity is a bad thing, but my point is that knowledgeable investors don’t diversify; Bill Gates major investment is Microsoft – Warren Buffett’s portfolio of over $100 billion is focused on about 10 stocks – Jeff Bozos main interest is Amazon.com.

By focusing on the thing that they know and can do best, rich people get richer while poor people get poorer.

The answer is to Invest in what you understand and only when is on sale. It’s like get a 10 dollar bill for a fiver. If you can learn to do that, diversification is a waste of time and most luckily going to reduce your returns.

So, what do you want to do?

The choice is yours.

P.S Please, don’t tell your financial planner about this. He might seriously act as a weirdo.

3# MYTHS – YOU CAN’T BEAT THE MARKET

This is a tricky one, and the reason is because only a small elite of investors can beat the market – regularly.

In fact, the Pareto law is at work here; 20% of investors take the 80% of the rewards. On the other hand, 80% of investors barely make a profit or lose money in the process.

You can understand better by studying the market wizards who have accumulate riches over the years.

However, the small investors like you have an advantage; FLEXIBILITY.

The BIG guys run BIG funds, making them quite illiquid and corner to a minority of investments and markets.

In fact, the act of a BIG guy exiting a stock or sector is the reason stock price goes down. As the price drop, other BIG guys feel the squeeze forcing to liquidate their positions causing “sell panic.”

Just think about the domino effect.

Save

The good thing going for you here is that you can access to a broader investment marketplace (small sectors where hedge funds can’t operate) and also, be much more flexible in your investment strategy. BIG guys need in average 3-12 weeks to exit a position. A small investor can exit in hours – few days most.

If you’re knowledgeable about that company and sector, you can stay calm and buy it at a great discount price while the BIG guys are in full panic mode. And when you do that, you will crash the market, literally.

And you might wonder: “Rudy, how much you would consider small?”

That is a good question, my friend. Look, there isn’t an all fit type of answer, varying by investments and sectors. However, if you are investing in the local market stock, until ten million dollars, you’re small enough to keep your agile advantage over the BIG guys.

THE MYTHS ARE BUSTED

In conclusion, there are many myths and misconceptions about the stock market. Most people hold back learning to invest for fear of losing money, maybe low self-esteem (I can’t do this, I’m just a Chef) and sometimes, not fully understanding the massive growth potential to one wealth.

Lastly, stop listening to your uncle Jerry’s advises. If he isn’t wealthy is because he doesn’t know how to create wealth in the first place. By listening to his market stock myths, you’re missing an opportunity for early retirement. Don’t work till 60 like your uncle, there is a better way.

I hope, by busting the 3 biggest market stock myths, you will feel confident enough to start investing in the market stock so you can leverage your savings and reach financial freedom faster.

http://smartmoneytoday.com/money/grow-your-money/stock-market/3-myths-stock-market-investing/

When Is The Right Time to Invest in The Market Stock - Smart Money Today

When Is The Right Time to Invest in The Market Stock - Smart Money Today

Jump in the market stock at the wrong time and you might face a loss of 12% in 24 hours

It’s not surprising that first-time investors often worry about the timing of their initial stock purchases

Now a day, the global economy is more interconnected than ever, in fact, you will notice a global trend of boom and bust in any market stocks over the years.

Most money websites and so-called “expert”, will preach about investing a small amount of money every month over an extended period, so you average out the up and down of the market stock. For the average investors that are happy to invest in ETF or funds might work, but what about the investors with a lump sum of money?

You might just have sold a house or heritage some money, and you are puzzled about timing investing in the stock market.

So, what is my opinion about buying on your first share?

Time is on your side

I firmly believe and suggest you to invest your money in stocks for the long run. Over the long haul, the compounding returns of a well-chosen investment will add up nicely, whatever the market happens to be doing when you buy your first shares.

Investors that try to time the market, buying and selling stocks often, are setting them self up for losing money in the stock market.

What drives stock prices up is ultimately profit. In a downturn moment, solid companies with excellent profit prospect will not lose much during the hard times, and in the long run, the share price will go up and up.

So, the first rule is to buy shares of profitable companies. Avoid any start up or corporations popular at the moment, instead, use fundamental analysis to choose the right stock.

Here the email I got from a retired man:

“I’ve been on the sideline as the market went up in recent years, from 2009. My money is sitting in a saving account producing nothing, but I’m afraid to buy the stock at the top and lose big.

Should I invest now or wait for a crash to get into the stock market?”

Timing the market stock is impossible, no one knows where the market is heading. It is like guessing the next numbers for the lottery, it is a gamble, and you shouldn’t gamble with your savings.

But there are patterns over the years, and before we have seen sudden declines in the stock market up to even 16%, before turning around and reach a new height. That doesn’t mean another surge will follow the next downturn.

The fact is, while we know this bull market will end at some point, no one knows when that day will come.

My advice is, develop a strategy that allows you to reap the reward in the long run weathering the up and down of the market stock, so the best time to invest is now little and more tomorrow when the market correct.

Change of Price Create Opportunity

Value investors have few opportunities to buy share during a period of corrections every year. From my analysis and experience, I have identified in average between one up to three times per year occurrences that offer entry points to investors.

The important question is: “How to identify a buying opportunity in the stock market?”

The sudden drop in the market stock for most shares is causing by internal and external factors.

Internal factors are related to the country economic and social condition. For example, a terrorist attack or export figures down can cause the stocks to drop immediately.

I would say, any bad news about the internal economic condition are an alarming bell for investors, and in this case, I would stay away from the stock market.

Instead, the benign “bad news” are for example a terrorist attack in the country, a storm, a flood or any social/political bad news coming from other nations that aren’t partner with the country you invest in.

The negative news will cause a correction in the stock market that has nothing to do with the economic fundamentals of the country and companies listed on the stock market exchange.

External factors are related to foreign affairs, foreign stock market and other nations. Because the world is interconnected and the speed of news is fast, your local market stock gets affected by the major international crisis.

An example these days is the slowdown in China with a massive sell off on the Shanghai exchange, spreading worries to investors in other markets and ultimately affecting their market stock. Negative news must be taken into consideration, even if you are investing in the another side of the globe.

An external factor like a war in some middle east country usually isn’t going to affect your investments.

In this case, I add shares to my portfolio. This is called trading stocks – buying and selling.

The important principle here is to exploit the mismatches what people think the stock is worth now and are willing to pay in near future. You want to buy stocks at the low price and sell it in the future at higher price getting a profit.

Who first have the information makes the money, and it isn’t you.

News that aren’t useful to you are:

• The announcement about a business; losing legal challenges, releasing earnings or new patents.
• Technical issues related to the administration of the stock; buyback, split, mergers, corporate offers.

I mention earlier these information will be irrelevant to you because you will be the last person to know, and the last person is always losing money. Before you, there are executives in the company, major shareholders, employees, brokers, professional traders and so on.

The news beneficial to you is:

• Broader market trends; fears of economic news, annual selloff, and slowdown, political events, crisis.

This type of news create panic, and during panic times, everyone is selling stocks. These corrections offer the greatest opportunities for you to get invested in companies with excellent fundamentals.

So, here the important lesson;

~ Buy on the correction of stock prices related to fears of economic news 

~ Buy stocks with strong fundamentals.

Keep a Reserve of Cash Just in Case

The market is crashing for few months, and it looks sexy, it is time to buy. That is great, you should get in with a long-term view about your investments, but wait, don’t pull in all your eggs.

Read the investment lesson of 1937; hold some cash, it isn’t just another story but history. The main point of this article that caught my attention is this:

“During boom times, cash often is viewed as a drag on one’s wealth, earning measly interest while stocks surge. After stocks fall, it becomes clear how valuable it is.”

Over my investing years, this dilemma is a monthly struggle while doing my personal accounting. I check every month my financial situation and how money is working for me. Too much cash during the market boom makes me think that I’m losing an opportunity of gain but during the bad time, I say to myself “likely have some cash on the side to buy some more stock”.

Too much cash during the market boom makes me think that I’m losing an opportunity of gain but during the bad time, I say to myself “likely have some cash on the side to buy some more stock”.

So, in your initial market stock investment, hold at least 30% in cash or bond which are an excellent defensive strategy to take advantage of future declines and weather bad times. You will feel more confident in holding your shares during the turmoil.

I usually start to use my reserve of cash when the stock pulls back above 10% from a recent high, with regular weekly purchase as the stock goes down. When the market turn around, going up constantly for two weeks, I stop my buy frenzy and hold the investments for at least one month.

From there, I decide if I should start to sell some shares weekly to get back to my original position of 30% cash or keep invested in the market for the bull run.

This system has been profitable over the years, taking advantage of the up and down of the market stock.

How long corrections/recessions last

Stock can go down from a minimum of 2 weeks up to 80 weeks looking at historical trends excluding the great depression.

In the above chart, we can see during the recession time the decline last longer with small correction between the years. In the last 20 years, recessions happen less often than in the previous century, indicating the FED have done an excellent job with monetary policies.

In the last 10 years, the stock market hasn’t grown match because of low inflation and low GDP, instead, in the eighties and nineties, the stock had a good run because of a booming economy.

“I believe the next recession will last long, between one to two years.”

We had an unprecedented monetary easing, this will exaggerate the next downturn.

Conclusion

These are my three golden rules to choose the right time to invest in the market stock. I didn’t talk about analyzing the companies, select high-value stocks because it will be entirely for another article.

I would love to hear your thoughts, please write them below and let’s discuss.

How Most Investors Lose Money in The Stock Market - Smart Money Today

How Most Investors Lose Money in The Stock Market - Smart Money Today

Learn How to Avoid Losing Money from the Common Investor’s Mistakes 

The stock market attract people from any social class and income brackets because is the pillar of wealth creation on the planet.

People overlook the fact that the market stock is a place where companies are traded, bought and sold several time per day by shares. Basically, when you invest in market stock, you are buying a company.

A company is selling products for a profit and over a period of time most company grow and make more profit increasing the value of their shares, making you as an investor wealthier. But the most common image portrait of the stock market is like a casino, where people gamble instead of investing.

I have invested in market stock for years, and my niche is Asian emerging markets (very exciting but very risky investments) because I have worked and lived in those countries for years giving me a better understanding of companies, products and consumers.

When in vesting in companies, it is important to understand their markets. If you are a first time investor, I suggest you to use this simple strategy yet effective. Do you have a favorite brand? A service that you and your family is using for years? Look at the company behind these products and services, it is a good start for your investments.

In these years I’ve both made and lost small fortunes. Fortunately, I’ve made more than lost and I can tell about my experiences Throughout my investing years, however, I’ve witnessed some horror stories – people who never recovered from some of their illogical investing.

So, before you take your hard earn money and jump into the market stock, I want to share with you the 7 most common deadly sins of investing I’ve seen people lose money investing in stocks.

7 Common Reasons Investors Lose Money in The Market Stock

I’m been there, I know how feel to see the hard earn money disappearing from your trading account. It is painful, and you feel that you can’t do anything about it. Not really.

Financial education is the first step to avoid losing money on the market stock. Learning from the mistakes of other investors is a painless lesson for you, but learning from your own mistakes will be costly and stressful.

This is the reason I’ve created this blog so you can learn from the mistakes of others (in this case my mistakes) and get all the benefits and rewards of successful investing.

Didn’t Invest in Personal Knowledge

This is the reason you are reading this article and you are learning from me. You know that you need first invest in your personal knowledge before investing in the stock market.

It puzzle me how many people jump into the stock market without any basic knowledge.

Just imagine to buy a Ferrari for your son which got the driving licences last month. What are the changes your son would crash? So, why crash your hard earning saving on the market stock?

Get knowledgeable first.

Trading Instead of Investing

It is tempting to trade. You might think that you can make fast and easy money, isn’t it? I buy at US$1 and sell minutes later at US$1.02 making a 2% profit. Easy.

What about if in minutes the stock goes to US$0.95?

Inexperience investors never think about the the dark side of the coin, and they loose money.

You need to learn how to create different scenarios for your investments, identify possible risks before they occur so you can handle any risk situation in swift manner.  This is called risk management.

Warren Buffett, the second richest man on the planet is terrible at trading and timing market events, so what makes you think you can?

Unfortunately, a very large study of day trader performance showed that more than 90% of day traders lose money in the long run. The study was published in 2010 of hundreds of thousands of day traders from 1992 to 2006:Click Here To read The Study.

Trading is a hard game, requiring 70+ hours per week and sophisticated software to operate, still producing underwhelming results.

My advise, don’t try to time the market moves in order to make a quick dollar, no matter how tempting it may be.

Buy at The Stock/Market Pick 

How often you heard TV and newspaper calling for “It is never been the best time to invest, stock at all time high with a growth of 50% in the last three years”.

This is the classic breaking news, that make noise and influence people to do irrational thinks; jump into the market stock, actually jump into “any” stock pick and market stock.

Usually great news about the stock market are during bubbles, and very bad news during the bottom. Inexperienced investor jump in during the bubbles and sell during the bottoms resulting in massive losses.

Quote of the day:

“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful”

Stock tips are just ideas. In other words, stock tips aren’t worth shit. Only your due diligence and fundamental/rational analysis of a company will bring to your attention great stocks to pick.

Another danger is to invest in market picks, because as it goes up, it will come down. And when the market as a whole come down, even good companies share’s price will follow suit.

This is an example of market picks for the Dow Jones in the last 3 years. If you would have invest money at the pick, in average take between 4 months up to one year to recover the money in a bull market. I mention bull market because in the graph above we are in a bull market. In case of a bear market, can take between 3 to 5 years just to recover your investment and start to turn a profit.

Market heights are developed by an influx of money into the market stock following positive sentiments by investors. It is demand/supply, the more stocks investors demand, the more the price go up.

Here is the problem with picks, they go for a correction (investors pull out their money), and if you stay invested, you are going to lose money and the time to just recover the investment is between 3 months up to 5 years depending on circumstances. This is the best way to lose money.

It is hard to predict if the market has picked, but take advantage of bottom market is much easier and profitable.

You will notice in my future articles, that I focus my investment strategy on the bottoms of the market. I have got great result buying in during the bottoms, holding and selling at higher value. I have developed a strategy that allow me to profit constantly with very low risk involved. Of course, there is always a risk, but a good investor will always minimize risks.

Pumped Stocks

Certain stocks, tend to get over hyped and overbought, just because the media is singing its praises and the brokers flooding investor email box with positive analytic charts.

I don’t mean all the stocks that get attention from the media are a bad investment, some aren’t. If you’re considering buying a heavily marketed stock, don’t be lazy, take one hour of your time to run a comparable analysis. This will save you from costly mistakes.

Simply, checkout their products and selling proposition, comparable study of industry peers’ price to earnings, sales and cash flow ratios, dividend discount, and debt to revenue. understand why this company in the near future is going to make more profit.

Would you buy a house without checking the neighbor hood prices? Same goes for stocks.

In my years of investing, I notice a handful of companies shifting from average performing company to superstars during economic super cycles or national new policy. Buying these companies stocks can be very profitable, but doesn’t happen often.

A simple example; if the government will offer a tax rebate to buy a new vehicles, this shift of policy will benefit car makers in the short term. So, buy stock of your favorite car maker is a no-brainer.

The recent collapse of oil, it is a economic super cycle event, and some companies are going to profit from it.

I bought one of the biggest asphalt companies in South East Asia because is benefiting from the collapse of oil price, the company have little competitors, and it is going to benefit from government spending in mega infrastructure.

For years this company profits were stagnant, but because circumstances and economic factors have shifted, this company is going to get a bust of earnings.

Invest More Than You Could Lose

Investing can trigger lot of emotions, I’ve seen people do some crazy things in the stock market, and just because they couldn’t take the short losses on the wave of the stock.

I know a smart guy that invested all his saving on the stock market after carefully picked the companies. In fact, the companies were fundamentally strong, unfortunately some bad news sent the general market into a two weeks dive (this is common in the market stock, nothing to be worry about).

He was stressed to the max every day watching his investment decreasing daily. He literally lost sleep over this investment because all his hard saving built in years were getting wipe out in days. Once he hit his breaking point (ten days) and could no longer handle the stress from his perceive risk, and sold out his positions.

He booked in a lost of 9%, but he could sleep again. However, he left on the table a 23% surge in the next year, just because he invested more than he could lose.

Investing more than you can afford to lose evokes all types of emotional decisions drive by fear. Fear is your worst enemy. With this simple step and others, you can reduce your fears to a manageable level helping you to avoid catastrophic investment decisions.

Catching a Following Knife

This one is where I’m been well experience in losing money, but I’ve have learnt my lesson in the hard way.

“Wow, this oil company lost 4/5 of its peak value, it is a bargain” Does it sound familiar?

I recently lost 20% buying into a oil company while the stock price was getting hammered thinking that eventually it would turn around soon. Result? After 2 months I sold at a lost of 20%.

I have got into the investment too early, fortunately I realized that and stop my lost at 20%. While writing this article, that stock has lost another 30% from the date I sold.  I haven’t lost interest in the oil stocks, I’m waiting for the bottom because it will be the right time to invest in the market stock for the long term, it might take more than 4 years to start to see a climb. But keep in mind, when investing time is on your side, so if you can wait for few years, you better invest your money somewhere else. .

In market stock and currency, falling angels are better be left alone till they reach bottom and the price consolidate for at least 2 months.

Now a days I’m more patient and let the markets settle even if it means I’m giving up some of the upside by not “bottom fishing”.

At the moment it might be a great opportunity to buy oil and coal mining stocks by a price point of view because the stock’s price is never been cheaper in the last 10 years. But price isn’t everything, what about the industry they are in and the company fundamentals.

Before buying into the oil industry, consider that 10 years ago there wasn’t electric cars could drive for 300 miles without refuel and have performance like a Ferrari. This could be a breakthrough innovation going to change the car industry and indirectly affecting the oil demand. Plus, the fracking revolution is flooding the world with cheap oil.

The goal is to buy good companies at a reasonable price. Buying companies solely because their market price has fallen will get you nowhere. Make sure you don’t confuse this practice with value investing, which is buying high-quality companies that are undervalued by the market.

Lost Opportunity

Most investors are hesitant to buy stocks just because they have rallied 10%-20% sometimes even in a day. I’ve made good money in the markets buying  stocks when there was a fundamental improvement in the investment story even if the stock had already rallied significantly based on the positive story.

This is a lost opportunity. Practically, you will not lose money as you never bought the stock but you will miss out on future gains.

Over ten years ago Berkshire Hathaway’s share price went from $6,000 to $10,000 in a year. Many investors waited for the stock to go down to its lower initial position, unfortunately they missed out on the subsequent rise to $70,000 per share over the following six years.

What’s behind the stock price rise? It’s the company! Good company with solid earning can weather any market storm.

I’m not saying that stocks never undergo a correction. The point is stock prices reflect the company performance and usually the price readjust from overvalued or undervalued prices during earning season.

If you find a great firm selling products in demand with good profit margins, there is no reason the stock won’t keep on going up.

Conclusion

In conclusion, every time I have lost money in the stock market is when I did one or more of the seven investing sins above. Losses in the stock market are unavoidable. They happen. But they don’t have to be a common occurrence if you know what to watch out for. And starting learning from the common investing mistakes, will put you in the right direction.

If you feel unsecured and not able to avoid the mistake above, I recommend index investing for you.

Index investing is a way to diversify your investing and not worry about the ups and downs of the market because you put money into the stock regularly over a long period of time.

I would love to hear your thoughts, please write them below and let’s discuss.

The Stock Trading Commandments; The Do and Don't - Smart Money Today

The Stock Trading Commandments; The Do and Don't - Smart Money Today

Fundamental Tips When Trading Stocks

“These simple tips will save you thousand of dollars in investing mistakes on the market stocks”

At core, the principle of investing is simple, the problem is investors are often influence by emotion, speculation and the unknown.

Investing is key to financial freedom and it doesn’t have to be a stressful or arduous process.

We’ve all seen our friends or coworkers losing money while trying to invest, and if they only new better, they would have saved heavy lost and took that extra holiday.

Below are the key principles that I use when investing in the stock market.

The Do and Don’ts to start investing in the market stock

Do check out the company before you buy

I’m amazed about how many investors buy a company based purely on price/charts and after investigate the company fundamentals.

The problem is there are many more factors than only share price to investigate before taking in consideration to buy a share. And I have to be honest with you, few minutes will not be enough for a fundamental analysis of the company.

However, once analyzed a company, your valuation will be valid for at least six month and some time even years.

I periodically analyze companies following the reports of my favorite brokerage firms. Sometime I do one company per week, sometime 4 times per week.

I put all the data on an excel spreadsheets, calculate the intrinsic value of the company share price and with my judgment, give a price tag of the stock for the next 12 months.

You heard right, there isn’t only numerical calculation or a magical formula to pick the stock, but my personal thinking about the company’s management, products, market environment , competitive advantage are the few other factors that help me to give a price to the stock.

People tend to think there is a magical formula (or the marketers want to make you think that) but it is an illusion. If that would be the case, the price of shares wouldn’t fluctuate few points of percentage everyday.

The consequences don’t doing your homework can cost you dollars in lost of investment and lost of opportunity.

Do your own homework

It is important to learn about the company you are going to buy shares, after all you are getting ready to own part of the company.

How long time do you spend in researching a US$500 laptop purchase? Maybe 4 hours?

If you are going to buy Us$5000 in shares, you should at least spend 10 hours analyzing the company.

That might sound like lot of your time, and maybe a bit boring but when you will see your stock picks growing, you will be glad to have invested your time so well.

However, you don’t need to spend so much time analyzing all the about of a company, such cash flow, financial sheets and all the numerical jungle out there, but just read a trusted broker report and do some personal investigation about their products and reputation.

A good start is the company’s website where you can get all the info about the company, management and products. There is lot of helpful information to give you an idea of the company.

Few questions that will come to your mind are:

How can you see this company and their industry in five years time? Has the company a solid history? What about competitors?

With little of homework, a constant research and monitoring of the market, you can profit and reduce your portfolio risks.

To me, doing your homework means to get yourself educated, to have a plan, to do your analysis (both FA and TA), to invest or trade according to your plan and to have a risk management strategy in place.

Do know your time frame for a stock

Now you have a rough idea about how much a particular company is worth today, and you have a rough idea how much the company should be worth next year.

Let’s say one share of Apple is worth US$ 100 and at the moment is trading for US$ 95. You buy in, but the next problem is for how long should I hold?

For example, a simple strategy could be; if the share price doesn’t move forward US$ 100 in 30 days, I would sell the lot.

This is just a simple sample of time framing that is important for your investments strategy. Without time, there is no plan, and without a plan you are going to lose control of your investments.

Write it down somewhere and stick to it. This might be one day, one week, months or years.

The another day I bought in three different share of companies all in different sectors (diversification strategy) with the intention to hold for at least 15 days if the index would have gone up constantly, otherwise sell all the lot at first indication of index losing momentum.

This time strategy is been beneficial for this investment, after three days of rising, a sector bad news stopped the climb of the index all together and immediately I locked in the profit of the investment. In the next weeks, the index and the stocks I sold went for a wild ride, my strategy paid off.

Frame time my investments, give me a clear strategy to follow taken away any emotional reactions that potentially could hurt  my portfolio.

Do set an exit price for the share, in positive and in negative

If the stock skyrocket for unknown reasons, take your profit. If you make a bad trade, take your losses and moved on. Don’t hope the price will go up tomorrow. That day might never come.

Setting a price is like setting a time frame, it is all part of your investment plan to be successful in investing. Don’t let the market get into your head, this is the reason why it is important to write down your exit strategy.

There are only two ways you can get out of a trade; by making a gain or taking a loss. In finance, the terms are take-profit and stop-loss.

Developing an Exit Strategy

For long term investors (hold shares for more than one month), you should focus in the following:

– Developing stop-loss points to reduce the downside risks and preserve your capital.
– Taking profit in increments over a period of time. This is useful when the stock is on the rise for more than 2 weeks. Every few days or weeks, sale a percentage of your shares, this will help you to lock in profit.
– Create exit strategies based on fundamentals over the long term.

How much risk are you willing to take? This strategy will determine the length of your trade base on price fluctuation. The higher your risk factor, the less trade you will do because wide fluctuation of the stock price will not force you to sell, after all, you are in for the long term.

Do have discipline in investing

Discipline is a key ingredient in investing as in life. A discipline investment strategy will keep you focus and ensure emotions are held in check. Buy and sell by your plan, do not act on emotions, it will cost you money.

I have discipline in balancing my portfolio of 50% equity and 50% fixed income periodically, usually every six months.

During time of strong market stock growth, my portfolio could be 60% equity and 40% fixed income, so I re-balance by selling equity and buying fixed income to go back the original mix.

This constant weight asset allocation system is been useful to take advantage of the up and down of stock markets.

Tactical Asset allocation is another strategy used by me in early basis where I forecast the movement of currency and different stock markets, allowing me to participate in economic conditions more favorable for one asset class than for others.

For example, if I expect the US stock market to under perform this year, I would allocate more resources to the currency market away from the stock and vice versa.

Dynamic Asset Allocation is a natural strategy to move investments where is expected the highest returns. With this strategy you sell assets that are declining and purchase assets that are increasing, making dynamic asset allocation the polar opposite of a constant-weighting strategy.

For example, the market stock is showing weakness, you start to sell shares and buy them back once the market show sign of improvements.

Don’t Panic!

What ever happen don’t take rush decisions, they will get you into trouble.

You aren’t a stock trader, you are in for the long term, remember? You bought stocks overtime with a strategy in mind, take your plan and read it. This should calm you down.

Whatever is happen today, it is only a day. some bad news might have knock off some of your stocks, but think about the fundamental of the companies. However, after a strong correction of the share price, it will not change the daily outlook, so you have time to decide if sell, hold or buy.

Just don’t panic.

Don’t buy high and sell low

Do buy low and sell high. Sound simple, isn’t it? So, why the majority of the investors does the opposite?

Well, because maths is only one part of investments, the other is psychology.

Let’s look at the boom in the past years, like the .com. People and investor alike, got the news about the huge amount of stock return during that period and everyone wanted a piece of action. They jump in at the pick and lost their saving.

Why happen that? Greedy, in one word. People were blind from the lie of quick profit. They wouldn’t see the reality of these company with huge valuations and no products, customers and history.

Instead, when the market is low and the companies are sweet deals, people will always look at the return of the stock market in the previous year and not feel excited about the negative return. They will avoid the investment all together.

Don’t invest all you money

Keep always a reserve  of cash for great opportunities that come along with a decline. You never know when the market is going to correct, but what you can do is to keep some cash in your trading account and when the market as a whole plunge, buy in some more share to add your portfolio.

I usually keep a 20% reserve, but this is my habit. Someone will hold 10%, other 30%, there isn’t a real magic number.

During a correction in August 2013, I had some 50% cash in the account while the stock market was going lower daily. I start to purchase 10% lots of shares every five days, till I was fully invested. The market correct for two weeks and went bull for a month, I made an healthy 16.6% profit.

If I didn’t have the cash, I would have lost money but also made no profit that month.

Don’t let opportunities pass by you

This is a tough one. New investors tend to buy in good times and sell in bad once. This is the most common reason why they lose the opportunity to buy share at discounted price during a downturn.

Correction/downturn are extremely profitable times to buy because the share price fluctuate wildly offering great returns with minimal risk.

Don’t let the fear to stop you from profit, take advantage of market corrections.