HirschRoyal657
A lot of my investment strategies come from fundamental investing and cost investing. I adopt strategies similar to Warren Buffett not simply while he is a well-known investor but because they take advantage sense to me.
That is the key to successful stock investing. Don't listen to anyone just because you believe he's more experienced available investing then you are. Rather, aim to think and analyze and browse more about your own before deciding which strategy best suits you. After you have developed your personal investment philosophy, stick to it and trust only yourself.
My Investment Philosophy
1. Don't generate losses.
As numerous people know, Warren Buffett famously put forth his two rules in stock buying a humorous manner in which Rule # 1 is "Never Lose money" while rule number two is " Do not forget rule number 1".
Capital preservation is essential just because a stock which has lost half its value will need to double in value before getting back to in which you started. That is why you must be extremely cautious in your selection of stocks and that brings us to rule number two.
2. Using a Margin of Safety
The margin of safety, simply put is really a buffer that you simply set up between that which you perceive to be the value of the stock and it is price. If you value a stock to be worth 1 dollar and also you only buy it if its price is 50cents, your margin of safety is 50 percent.
Deciding just how much margin of safety you should give to a stock varies for businesses in different industries and is another topic by itself.
In conclusion, a margin of safety factors are necessary to protect your capital in case you were wrong in your initial assessment of the stock pick. This way, even if you were wrong, you would have obtained the stock in a reduced price then should you have had not catered for a margin of safety.
3. Invest for the Long Term
There is no way to time the marketplace, but many people seem to think other wise. They buy once the stock dips slightly and hopes that in the near future they are able to sell it for any profit. These people usually adopt a "hit and run" strategy where they're happy with making a few 100 dollars every time they create a trade. They likewise have a cut loss strategy where they will exit the trade when the price drops beyond a specific amount within times of acquiring the stock.
The reality regarding the stocks marketplace is that real cash is created a few weeks. If you're frequently entering and exiting the market, chances are that throughout the few days of a real rally in price, you will not be in the marketplace, thus passing up on earnings.
Investing for the long term also helps you save on commissions paid towards the broker, capital gain taxes and puts the strength of compounding into play. The difference between trading in the market and buying for the long term is important and should not be ignored.
4. Knowing when you should sell so when not to sell
Even though I advocate investing for the long term, i am not saying keeping my investments forever. After i value a stock, I curently have in mind how much the stock may be worth and therefore already have an exit price in your mind. The purpose of value investing would be to purchase this stock in a significant discount from its value.
However, there could be times when the marketplace is euphoric and the price of the stock surges way beyond what I have valued it at. At this point of your time, I will reassess the organization to ascertain if I have omitted any key news or factors that could be responsible for the increase in price. If my asessment of the company continues to be same, I will sell the stock since there is pointless why I ought to not take advantage of the insanity from the market.
It is important to not be greedy at this point of time and keep enhancing the exit price you have set. Have an exit price and stick to it.
Overturn holds true also. Many people panic and sell once the price drops and that doesn't make sense. Once the price of a stock drops, look into the fundamentals again. If nothing has changed, your assessment of their value should be the same which implies that the stock is at a much greater discount then that which you previously bought at. In this instance, you need to go ahead and take chance to buy in additional of this stock.
5. Keeping Cash with you when there aren't any good stocks to buy
Many reasons exist for keeping money with you when there are no good stocks to buy. Many people find it hard to do this. As soon as they've some cash at hand they want to buy some stocks if they do not, they think that they are not in the market and thus not "investing".
Also, keeping cash with you allows you to take advantage of sudden dips within the stock prices due to some market fluctuations which are not resulted from a change in the companies fundamentals. In these instances, you should average down and purchase much more of that stock. The scariest thing that can happen to you is not having cash to average recorded on a purchase that has now presented a larger discount then before, due to your need to keep all your money in the marketplace to "feel that you are investing".
