Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment tips and stock market advice. Each Investor Toolkit update gives you a fundamental piece of investment advice, and shows you how you can put it into practice right away.
Today’s tip: “Instant riches with one hot investment are virtually unattainable, but these 3 tips will help investors find something much better—dependable long-term success.”
Many beginning investors start out with these types of ideas. Some aim to stumble upon an investment that provides a 1,000-to-1 return, or find an investing course or guru that promises instant riches.
Investing for beginners: Everyday qualities—not big ideas—are the keys to successful investing
If you ask investors who have a few decades of successful investing behind them, few, if any, will credit their success to any one investment or investing technique. Instead, most will talk about the value of everyday qualities like patience, consistency and a healthy sense of skepticism—in short, the kind of qualities that bring success in all aspects of life, not just investing.
These qualities help you apply our three-part TSI Network formula for investment success: invest mainly in well-established, dividend-paying stocks; spread your money out across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities); and downplay stocks in the broker/media limelight.
Investing for beginners tip #1: Approach all investments with a healthy sense of skepticism. This can help keep you out of fraudulent stocks that masquerade as high-quality stocks. It will also keep you out of legally operated, but poorly managed, companies that promise more than they can possibly deliver.
Investing for beginners tip #2: Losing patience can cause you to sell your best choices right before a big rise. All too often, investors buy a promising stock just as it enters a period of price stagnation. Even the best-performing stocks run into these unpredictable phases from time to time. They move mainly sideways in a wide range for months or years before their next big rise begins. (Stock brokers often refer to these stocks as “dead money.”)
If you lack patience, you run a big risk of selling your best choices in the midst of one of these phases, prior to the next big move upward. If you lose patience and sell, you are particularly likely to do so in the low end of the trading range, when stock prices have weakened and confidence in the stock has waned.
Investing for beginners tip #3: Consistency is crucial. You can’t succeed by applying our three-part formula three years out of four. If you try to do that, you run a serious risk of abandoning the formula when risk is at a peak. That’s when our formula serves you best, and failing to adhere to a sound investing approach can do the greatest harm to your net worth.
Our investment advice: One key to a long and profitable investing career is to win by not losing. Stick with our three-part investing approach. Resist the temptation to act on impulse, emotion or tips. Stay out of investments that require extraordinary luck or timing. Likewise for anything that requires you to pay high and continuing fees and brokerage commissions.
Economic problems come and go. But in any reasonably free economy, the long-term stock market trend points upward. To succeed as an investor, all you really need to do is find a low-risk way to cash in on that trend during the good times, and avoid losing all your gains and capital during the inevitable setbacks.
COMMENTS PLEASE—Share your investment knowledge and opinions with fellow TSINetwork.ca members
Can you think of one “get-rich-quick” investment idea that you found tempting? Did that idea work out for you, or for anyone?
Note: This article was initially published on May 3, 2011.
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