Ways to Become a Better Investor
We all want to become better investors when it comes to the financial markets. With all the information available, it can be hard to determine what’s right and what’s not. Many investors try different methods to see what works. But, without clear direction, this can end up being a waste of time and resources.
There’s an easier way to go around it. Being a better investor takes consistency and work. It doesn’t happen overnight and neither does it occur accidentally. Below are 8 tips that will help you become a better investor:
Watch your stocks, not the market
A sinking market doesn’t necessarily correspond to a frothy stock price. If the market is underperforming, it’s not guaranteed that your stock will suffer. Knowing when to sell will depend on how a company is performing and how it’s priced. Avoid the general panic that arises from rising prices. This may cause you to sell everything when you’re not supposed to. Falling prices do not also mean that your investment is safe. Reacting due to panic or a false sense of security are both equally unwise.
Filter through the noise
Everyone will try to convince you that they know why the market rose or fell. A good number of these reasons will sound flimsy. In reality, they actually are. There are a million reasons why the market will react in a certain way in the short term. Also, those who offer financial commentary and advice don’t know you and neither do they know about your situation. The advice given applies to the broad population. Whether it applies to you individually is something they have no idea about. It’s advisable to look for information and advice that applies to you and your situation.
Don’t assume good performance results in great stock
A company that has good management, low debt, and makes tons of money won’t necessarily have great stock. Some companies in Gold Coast have their share prices bid up to unbelievable levels. This becomes unsustainable in the long run. Consider waiting for the share price to drop. It’s going to happen sooner or later.
Learn a thing or two from Star Trek
Spock is one of the main characters in Star Trek. What’s interesting about him is that unlike humans, he’s a logical thinker. He depicts an unemotional and cool character that allows him to make rational decisions even under high stress. According to old economic theory, the ideal investor is like Spock – always ready to make logical decisions so as to maximize his/her wealth. Modern studies in behavioral finance take into consideration the fact that most of us invest based on our emotions and feelings. To become better investors, we must be able to recognize our biases and faulty thinking as well as find a way not to repeat our past mistakes.
Buy right, don’t worry about selling
A lot of advisors claim that the buy-and-hold method of investing doesn’t work anymore. But, each time they say this, the market ends up proving them wrong again and again. Consider buying from dividend-paying companies when their stock is on sale. Keep a hold of it until a major change occurs. This could mean holding it for a lifetime.
Know what you’ve invested in
A lot of people don’t know the difference between the various assets and financial instruments they’ve put their money into. A stock index fund is different from stock. So is a stock fund from a bond fund. Also, a lot of mutual fund owners are normally caught up in an irrational scare that their money is going to disappear all at once. This is because they don’t know what it is they own. The 500 largest companies are not just going to lose all their money at once. Take time to study and know what it is you’ve put your money into. It will take away much of the irrational thinking and fear.
In addition to websites, read books
The information available on the internet can be overwhelming. Sometimes, it can be contradicting as not all sources are credible. When it comes to getting financial education, very few things beat a good book. Investment books provide in-depth knowledge on various topics. This makes them a good resource for learning about the financial markets.
Take an accounting class
Taking time to learn and understand the basics of business accounting can be of great advantage. You get to learn how to interpret a company’s annual and quarterly reports in order to determine their financial health. By taking time to comprehend how companies are valued in relation to their market performance helps to make rational decisions even in times of stress. When other investors are panicking, you’re able to look beyond the prevailing circumstances and make decisions that will be beneficial to you in the long run.