4 proven strategies for profitable and safe investing

We’ve long recommended these 4 safe investing strategies in our newsletters and investment services. They can help you cut risk — and increase profits — in your stock portfolio.

(Our special report, “Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada,” is full of safe investing strategies that you can easily put into practice right away. Click here to download your copy today.)

1. Look beyond a company’s share price: It’s a mistake to base your decision to buy or sell a stock on past stock-price performance alone. Rising and falling trends come in many shapes and sizes, depending on what’s going on in a company, its industry and the world.

A stock never gets so high that it can’t keep rising, or so low that it can’t keep falling. That’s why you have to look beyond price changes and focus on investment quality when deciding whether to buy or sell.

2. Be skeptical of companies that mainly grow through acquisitions: Making acquisitions can speed up a company’s growth, but it also adds risk that can undermine a conservative, safe investing approach. Great acquisitions are rare finds. Many acquisitions come with hidden problems or risks, or they turn out to have been over-priced.

Despite the risks, some acquisitions turn out hugely profitable. So, your safe investing strategy shouldn’t automatically discount companies that have grown through acquisitions. Just keep the risks in mind, and avoid companies that seem unaware of them.

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3. Sell if you doubt the integrity of insiders: It’s always a good safe investing strategy to sell your shares in a company if you have any doubts about the integrity of the people in charge. In other words, if you think a company is run by crooks, you should sell right away, no matter how attractive it seems as an investment. There are no limits to the ways in which unscrupulous operators can and will cheat you.

To profit from this safe investing rule — that is, to use it to enhance your long-term returns, not just avoid loss — you need to apply it in a moderate fashion. You need to distinguish between lack of integrity on the one hand, and naivete or poor judgment on the other.

Many public companies eventually run afoul of tax rules or regulatory decisions, for instance. If you take that as a sign of low integrity, you can wind up selling solid investments at market lows.

4. Resist the temptation to copy prominent investors: Sometimes you’ll hear that a stock is a good buy because some prominent investor (a company, family or individual) has a stake in it.

However, it’s important to remember that prominent investors don’t expect to profit in every investment they make. For example, sometimes they invest for strategic or political reasons, rather than profit.

To profit by copying the decisions of prominent investors, you have to copy what they do with the bulk of their money, not with token amounts of it. That’s hard to do, since prominent investors often keep their best investments hidden until they want to sell.

As a member of TSI Network, you may have already seen Canadian Stock Market Basics: How to Trade Stocks and Make Good Investments in Canada. If you haven’t yet read this free report, click here to download your copy today. I’d also encourage you to share the report with a friend by forwarding this email to them. It’s my “thank you” just for signing up for my free daily updates.