Many straight-faced investment experts with a glow in their eyes will insist that successful investing is a function of extensive research, skillful market planning, and detailed technical analysis. Others emphasize basic information about the company, industry, and market. However, trends and numbers are secondary to a thorough understanding of the basic principles of investment and governance and their interrelationships. The ingredients for a successful investment portfolio are a strong belief in quality, diversification, and trinity of returns on investment 101 and operations that leverage the planning, leadership, organization, and control skills introduced in freshman management.
Here are a few things to keep in mind as you gain experience with patience and set your investment process with discipline:
A viable investment program starts with the private development of the investment plan.
The first step is to identify personal goals and a time frame for achieving them. The result should be nearly on autopilot, long term, and increased retirement income. Asset allocation is used to structure a portfolio in such a way that it functions in a targeted way. The completed plan must be flexible in design, based on reasonable expectations, simple in structure and operation, and easy to monitor.
Use a “cost-based” asset allocation model.
While much of the investing world operates on a market value basis for everything from performance analysis to asset allocation modeling and diversification, you will improve your long-term performance and better adhere to your allocation guidelines. Diversification with a working capital-based system. This largely unknown “asset allocation model” removes the distraction from daily stock market reporting and focuses investor returns on the appropriate statistics.
Among other things, control your emotions.
Fear and greed are two things that need the most control in an investment environment … especially today with reckless media powered by internet fraudsters, fast data retrieval/processing, and cheap private trading opportunities. We also have to deal with love and hate, but the external physical influence on them is less. Only highly disciplined decision-makers should apply for your position in investment management … and you may not be the ideal candidate. Investment management is a constant responsibility, not the weekends and the occasional night call.
Avoid poor analysis and uninformed (or seller) criticism.
It’s hilarious about how donkeys have taken over our society … in sports, finance, politics, and professions, everywhere … everyone you hear is just guessing and brandishing fingers. No one was ready to take responsibility for their actions, and everyone was ready to judge who could, “wanted” or “should” prevent what happened. Investors cannot afford to become mourners of the Little League. Make one of the three main decisions (what is it?) And don’t look back. No person or program can predict the future, and your portfolio must be managed today. The playing field for the investment game is uncertain.
Set a profit target for each security you buy.
The goal of investing is to make more money than you can invest in a non-negotiable guaranteed tool. Greater hope of making money comes with risk … there are some and it’s “in” all investing. Set a reasonable profit target in the stock and deduct it if you can get there quickly. When investing in income, never say no to an income equal to your annual income or 10% if you like round figures. There are always new investment opportunities and there is no such thing as a bad profit … or a good loss.
Check the market value figures at smart intervals.
Research is often stressful and unproductive. There is no average or index to compare with a well-diversified investment portfolio, especially if your stock options are scrutinized for quality and returns. Investing is a long-term endeavor and there are no symbols of market shocks or current rates of return working on calendar year plans. Look at market spikes and levels over the main timeframes that cover the “cycle” … and break down your analysis by class.
Avoid what the crowd is doing and avoid investment products.
Consumers buy products; Investors buy shares. Crowds are driven by emotions themselves, which need to be learned to control. Focus on your plan. Analyze your annual sales and trade statistics. Buying and holding create more real tax problems than true millionaires, and tricks and desires last a little longer than spring fad. Always buy good for bad news and sell good news.
Don’t try to save the world with your investment decisions.
Never artificially limit your investment opportunities. Voice works better when it comes to changing your world, and companies shouldn’t be the object of your political resentment … move away from the current state and local situation until changes to tax laws, social security, and redress laws, Environmental issues, etc. Meanwhile, invest it with your mind, not your heart. The business of capitalist society is …
Remember, you need income to pay your bills, and your living expenses in retirement will be higher than you think.
If you insist on a return on the value of every stock you’ve ever owned and beat the bank on the income from the securities, you get two important things: A cash flow that increases every year that increases at a rate higher than most normal inflation and a portfolio interest rate. Higher quality investment for better long-term investment returns. (If you are using a cost-based asset allocation model where at least 30% is invested in income-related securities rather than a mutual fund or ETF.) Never settle for small short-term returns or maintain unsustainable returns.
Investing is never a competitive event.
You don’t have to beat the market. There are several specific goals that you need to achieve. Even your twin portfolio doesn’t have to be the same as yours. The faster you run, the less likely you are to succeed over time. High-risk, reliable tricks, and exotic computer programs cause more errors than success stories. Do you remember the investment god? They create stocks and bonds … just stocks and bonds!
Avoid unrealized profits, embrace volatility, increase annual income,
Remember that all-important investment moments are visible only in the rearview mirror. Most of the unrealized gains are converted to List D losses. So far there hasn’t been a rally unsuitable for the next rally. Only increasing income can overcome inflation … more market value does not.