If you are just starting out as an investor, making large short-term profits can be enticing. While active trading can be an effective way to make money, it requires considerable time, knowledge, and financial resources. Long-term investing may not necessarily be a more profitable option, but it is generally less risky and can provide a steadier source of income. Here are 5 tips that can help you achieve success in long-term investing.
Sell the Losers and Ride the Winners
It is common for investors to hold on to a stock for too long, in the hope that it will rebound. However, there is no telling whether a stock will rebound following a protracted decline, and it can fall further and incur a bigger loss. While it is true that you should not underestimate good stocks, you should also be realistic if your investments are performing badly. You need to accept your losses and move on. Also, many investors have a personal policy to sell a stock after it has gone up by a certain multiple, maybe three or five. These investors will never be able to ride out a winner fully. If you underestimate a stock that is doing well because of a rigid personal rule, you will miss out on great profit opportunities.
Avoid Chasing a Hot Tip
When you receive a tip from your friend, relative, or even broker, you should not accept it until you know it is sound. You need to do enough research and analysis on a company before you invest your hard-earned money.
Do Not Let Short-Term Movements Unsettle You
It is important to have confidence in your investments. When you are monitoring your investments, you should focus on the big picture instead of being nervous about short-term volatility. Avoid paying too much attention on the few cents you can save with a limit versus market order.
Choose Your Method and Stick with It
Investors who use different stock-picking strategies are more likely to get the worst instead of the best of each. Once you have determined which strategy works best for you, stick with it. According to an article published in Investopedia, Warren Buffet’s decision to stick to his value-oriented strategy prevented him from investing in tech startups that eventually collapsed during the dotcom boom in the 90s.
Focus on the Future
Investing is difficult because it requires you to make decisions on things that are yet to happen. As such, it is essential that you focus on the future potential of a stock instead of its past. Investor Jason Sugarman advises investors to choose companies that are tech-oriented, because such companies are more likely to succeed in the future.
In today’s volatile stock market, it is more difficult to make long-term investing work. However, if you follow the tips above, you will have a greater chance of succeeding.