Investors of the past and present, such as Benjamin Graham, Warren Buffett, Sir John Templeton, and Martin Litton, have taught many lessons on being a successful investor. Graham’s teachings focused on buying solid companies trading below fair value. The best part about buying stocks below fair value is that you can’t lose money. You either buy cheap and profit or buy expensive and profit. Graham’s great philosophy of buying high-quality companies at fair value in good times and bad is still used today. Whether you want to learn how to create a dividend growth portfolio, how to build a diversified portfolio, or how to start investing now, you need to hear what the experts say.
The Psychology of Investing
Motley Fool co-founder David Gardner wrote a great book called Super Motley Fool, which became a bestseller because his investing brand was simple but not easy. He emphasized compound interest and always keeping your eye on the long-term.
Mr. Gardner offered his best investing advice in the foreword to his book: “The most important money lesson I’ve learned is to take care of your heart and let your mind work for you.” You may consider Iraqi dinar if you decide to venture into foreign currency exchange.
The Importance of Risk Management
In his book, Risk Asset Management, author Philip Michelson offers great advice on how investors can reduce risk. In a nutshell, risk management entails preparing for the worst possible outcome. This includes having a diversified portfolio with a variety of investments.
Michelson makes an excellent point when he reminds us that, “Intrinsic investment values—whether its yield, dividend, or total return—are the result of those times when risk is mitigated or avoided.” Michelson’s book is a must-read for all investors who seek to live within their means and avoid overreacting to every market fluctuation.
How to Change Your Mindset
David Swensen has been managing the portfolios of Yale’s endowment since 1975. He is the architect among the most successful endowment strategies, the Yale Growth Fund. Swensen’s three-tiered approach to managing the endowment has proven to be a big success. It starts with having a broad and sustainable asset allocation. But it does not end there. As you might expect from a Yale University endowment, the strategy considers market risk and opportunities for “special investment circumstances.” Swensen likes to say, “There is always a price for the government’s failure to generate income; however, there is seldom a price to pay for the government’s success in generating income.”
John Bogle, the founder of Vanguard, says, “The only way to achieve success in your life is to live it as if it were your last day.” Bogle referred to the retirement issue that most people neglect and the best way to achieve financial success. “You can’t succeed in your life or your business if you are not successful in your retirement,” Bogle says. “If you live in a savings and investment account of, say, $40,000, and your spouse is earning $100,000, there is no way that you could make money last.” The next time you have a tough financial problem to solve, remember the immortal words of Bogle: “Live as if it were your last day.”
The Importance of Diversification
It can’t be overstated. “Diversification is a form of insurance that reduces your risk in volatile markets,” said Jeff Bell, Head of Fixed Income at Elior Capital Markets, Inc. The vast majority of investment returns, both short and long-term, are generated through the magic of compounding. This makes investing less volatile and less risky.
Investing in the stock market today, however, doesn’t offer the stability of a pension or 401(k). Instead, the stock market generates extreme volatility and uncertainty, especially in the ever-changing technology sector. That makes it extremely important to invest in a diversified portfolio of both stable and unpredictable stocks. Many experts believe the greatest investor of all time, Warren Buffett, would do well to get a little more.
When it comes to the risk of investing, there are several risks involved, including the possibility of losing all your money. This is why the best investors have used several different strategies to combat this risk. One great strategy is diversification. This basically means you should not put your entire eggs into a sole basket.
Investing at the Right Time
Most investors go through a typical investing process that involves the following steps:
- Figuring out which stock to buy
- Deciding how much you want to invest
- Laying out a plan for investment growth and watchfulness
- Researching the company to determine if it is a buy or sell
On a short-term basis, your task is to monitor your stock to see if it’s making improvements to its stock price and possibly increase in price. For a long-term approach, you need to determine when to buy a stock and hold your position. Knowing when to invest and when to maintain your position is very important when it comes to investing.
The world of investing is ever-changing, and it’s essential to be aware of these changes. Investors who actively monitor and adjust their portfolios can be one step ahead of their competition and generate higher returns. But, with the current market environment, it’s more important than ever to be discerning when entering or exiting positions. Among the vital tasks of any investor is to figure out what companies will be successful in the future. As our world gets more globalized, certain industries tend to do better than others.
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