Being A Long Term Winner In The Stock Market
February 1st, 2009 | by admin |Albert Einstein has often referred to compounding as the 8th wonder of the world. Indeed, the power of compounding is astonishing. The only problem is that at the beginning you won’t see much of a reward. Yet this is the key to winning in the stock market: over the long term, you will make a lot of money because time is on your side. This article is not about get-rich-quick schemes involving the stock market. It’s about setting up your plan so that you position yourself to be sitting pretty a couple of decades from now. Let’s get started.
1. Set your goal. Take your personal factors into consideration to come up with the type of portfolio that best suits you. Then analyze every potential investment by thinking about what you want out of it and whether or not it fits into your overall investment plan. Just like a sports coach, have your X’s and O’s ready, don’t react to the market. This will save you a lot of headaches and money.
2. Come up with a strategy. Stock market investing tactics and strategies are a dime a dozen. Any Google search or trip to your local library or bookstore will present you with a dizzying array of choices. Faced with such a wide range of options, you’re better off deciding on one strategy that you’re most comfortable with and that fits your style, and going with it. Leave yourself open to the possibility of making a minor change here and there but have those changes be the exception rather than the norm.
3. Determine potential risks. Make sure that you’re able to correctly determine risks that undoubtedly come hand in hand with every opportunity. One way to do so is to look at your potential investments with as critical an eye as possible, and to devise your management plan accordingly. You’ll be happy you did because you will be able to minimize your losses even in the event that a particular investment turns out to be a money-losing proposition. Notice how this step comes before profit assessment? This is to make sure you don’t get overwhelmed with excitement before you size up the gamble you’re taking.
4. Gauge profit potential. Based on the profit potential of your investment, you should be able to determine price points where you sell and get out. One of the biggest hurdles for novice investors is knowing when to get out of an investment. They eventually wait too long and lose some of their on-paper gains.
5. Keep an eye out for comparable opportunities. Do a little more research. Check to see if there are other investments that have fewer risks, a better profit potential, or if there are is another strategy that will make your life easier (or hopefully a little richer at the end of the day).
6. Scale the mountain. This step goes hand in hand with devising a strategy from the get-go. Every investment you make will have its unique challenges to optimize rewards and minimize losses. Anticipating them gives you a leg up that will allow you to achieve that exact goal.
7. Have your plan B handy. Set specific boundaries as to when you should get out of an investment. Whether everything goes wrong and you need to bail out or you’ve hit it big and need to move on to other investments, having explicit, well laid-out limits prevents you from losing returns or just losing more money.
8. Make the right choice. Investing is time-consuming, so before you jump in, take one good look at your overall investment plan. Hopefully, by then, you’ve been able to put together all the pieces of the puzzle and can see if the whole thing holds up and is worth pursuing. In case it isn’t, you can take solace in the fact that it’s easier drawing up a new plan than recouping thousands of dollars worth of losses in the stock market.
9. Go for the gold. Once you decide to pursue an investment, don’t second guess things. Give it all you’ve got and you’ll probably come up a winner. Yes, it does sound clich, but even if things don’t pan out for that investment, you won’t be that big of a loser either because you had limits in place to limit your losses (see points 4 & 7). Steadfast resolve to follow your game plan will give you the best returns in the long run.
10. Debrief. On a regular basis, look back over your plan and analyze your results. If you picked out some duds and suffered heavy losses, try and figure out where you went wrong so that you don’t make the same mistakes next time. The worst thing you can do at this point is give up because then you won’t have learned anything from your mistakes. Instead, constantly tweak your approach and refine your technique until you find that perfect strategy. Once you’ve done that you’ll be on your way to success in the stock market.
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