5 powerful stock trading tips for higher long-term returns

You can enhance your long-term investment results by following these 5 key stock trading tips. They’ve long been part of the advice we give in our investment services and newsletters, including Canadian Wealth Advisor, our advisory for conservative investing.

1. No stock can ever be so undervalued or desirable that it overcomes a lack of integrity on the part of company insiders: If you have any doubts about the integrity of insiders, sell immediately. There are no limits to the ways in which unscrupulous operators can and will cheat you.

However, to enhance your long-term returns, not just avoid loss, you need to apply this tip 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.

2. Compound interest — earning interest on interest — can have an enormous ballooning effect on the value of an investment over the long term: This stock trading tip’s benefits apply to both stocks and fixed-return, interest-paying investments, like bonds. When you earn a return on past returns, the value of your investment can multiply. Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an accelerating rate.

To profit from this tip, you need to pay attention to steady drains on your capital, even seemingly small ones — like high brokerage commissions, say. If you’re losing (or missing out on a profit of) even 1% a year it can have an enormous draining effect on your investments over a decade or two.

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3. As a group, investment long shots are overpriced: If you have nothing but long shots in your portfolio, you are likely to make meagre returns or lose money over long periods, rather than making the high returns you seek. That’s why you need to be particularly cautious and selective when adding anything to your portfolio that offers the potential of high returns.

4. Financial incentives have an enormous impact on the beliefs of otherwise honest people: That’s particularly true when it comes to what they are willing to say in order to spur you to buy something. Failing to spot these conflicts of interest can be very damaging to your investments. We’re not just talking about stock brokers. As the saying goes, never depend on your barber to tell you that it’s too soon for you to get your hair cut.

5. The markets for fungible goods like oil, interest rates and gold are inherently unpredictable: Markets like these are so enormous that there is no practical limit to how much you can trade in them. It follows that if you could predict them, you could wind up acquiring a measurable proportion of all the money in the world, and nobody ever does that. That’s why it’s a mistake to build your portfolio in such a way that you have to accurately predict the future direction of fungible goods like oil, interest rates or gold.

If you’re looking for safety-conscious stock trading tips like these, you should subscribe to Canadian Wealth Advisor. Click here to learn how you can get one month free when you subscribe today.