PenickKao811
Much of my investment opportunities are derived from fundamental investing and cost investing. I adopt strategies much like Warren Buffett not simply while he is really a well known investor but simply because they take advantage sense to me.
That is the answer to successful stock investing. Don't listen to anyone just because you think he is more experienced in stock investing then you are. Rather, seek to think and analyze and read more on your own before deciding which strategy most closely fits you. After you have developed your own investment philosophy, stick to it and trust only yourself.
My Investment Philosophy
1. Don't generate losses.
As many people know, Warren Buffett famously put forth his two rules in stock buying a humorous way in which Rule # 1 is "Never Lose money" while rule number 2 is " Do not forget rule number 1".
Capital preservation is important because a stock that has lost half its value will have to double in value before getting to where you started. That is why you must be extremely cautious in your selection of stocks which raises rule number two.
2. Using a Margin of Safety
The margin of safety, to put it simply is a buffer that you simply put in place between that which you perceive to be the need for the stock and it is price. If you'd prefer a stock to be worth 1 dollar and also you only buy it if it is price is 50cents, your margin of safety factors are 50 percent.
Deciding how much margin of safety you need to give to a regular varies for companies in different industries and it is another topic in 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 though you were wrong, you would have purchased the stock in a reduced price then if you had not catered for any margin of safety.
3. Invest in the future
It's impossible to time the market, however, many people appear to think other wise. They're buying once the stock dips slightly and hopes that in the near future they are able to sell it for any profit. These folks usually adopt a "hit and run" strategy where they're contented with creating a few A hundred dollars every time they create a trade. They also have a cut loss strategy where they'll exit the trade when the price drops beyond a specific amount within times of acquiring the stock.
The truth about the stocks market is that real cash is made a few weeks. If you are frequently entering and exiting the marketplace, most likely during the few days of the real rally in price, you won't be in the market, thus missing out on earnings.
Investing for the long term also saves you 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 purchasing in the future is significant and should not be ignored.
4. Knowing when to sell so when to not sell
Despite the fact that I advocate investing in the future, i am not saying keeping my investments forever. After i value a regular, I already have in mind just how much the stock is worth and for that reason already have an exit price in mind. The objective of value investing would be to purchase this stock in a significant discount from the value.
However, there could be times when the market is euphoric and also the price of the stock surges way beyond things i have valued it at. At this point of your time, I will reassess the organization to ascertain if I've omitted any key news or factors that could result in the rise in price. If my asessment from the company continues to be same, I'll sell the stock because there is pointless why I ought to not take advantage of the insanity from the market.
It's important not to be greedy at this point of time and keep enhancing the exit price you have set. Come with an exit price and stick to it.
The reverse holds true also. Most people panic then sell once the price drops and that doesn't seem sensible. When the price of a stock drops, check the fundamentals again. If nothing has changed, your assessment of its value ought to be the same and this means that the stock reaches a much greater discount then what you have previously bought at. In this instance, you should go ahead and take opportunity to buy in more of this stock.
5. Keeping Cash with you when there are no good stocks to buy
Many reasons exist for keeping money with you when there aren't any good stocks to buy. Lots of people find it difficult to do this. As soon as they have some cash at hand they want to buy some stocks because if they do not, they think that they're not in the market and therefore not "investing".
Also, keeping money with you enables you to take advantage of sudden dips in the stock values because of some market fluctuations which aren't resulted from the change in the businesses fundamentals. In these instances, you need to average down and purchase more of that stock. The worst thing that may take place isn't having cash to average down on an order that has now presented a larger discount then before, because of your need to keep all your money in the marketplace to "feel that you're investing".
