These long-term investment strategies will accelerate your investment results

Here are five long-term investment strategies that we are certain will enhance your long-term investment results. They have been central to the advice of our investment services and newsletters, including Canadian Wealth Advisor.  It’s our advisory for conservative investing.

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1. No stock can ever be so undervalued or desirable that it overcomes a lack of integrity on the part of company insiders

We’ve always believed that investors should sell a stock if they have any doubts about the integrity of the people who are in charge of the company. In other words, if you think a company is run by crooks, you should sell the stock right away, no matter how attractive it seems as an investment.

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 unintentionally 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 sound 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

Compound interest can be considered the mother of all long-term investment strategies. This tip is especially important for young investors to learn. The benefits of this stock trading tip apply to both stock 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.

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. This advice is especially applicable to new investors, who may seek outsized returns from investments such as IPOs, penny stocks and stock options. These market vehicles are certain to hold you back from long-term investment success.

4. Financial incentives have an enormous impact on the beliefs of otherwise honest people.

That’s particularly true when it comes to what purveyors of investment products 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 consistently predict the movements in these markets, you could wind up acquiring a measurable proportion of all the money in the world, and nobody ever does that. For example, if in Canada, utilities ETF managers could consistently predict the market’s ups and down, their returns would far outpace the performance of any one stock. It’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. The key to being a Successful Investor is to invest in well-managed companies. That includes quality exchange traded funds, from Canada utilities ETFs to Canada dividend ETFs. The unpredictability of the market facilitates the need for this rule. Well-managed companies can weather financial downturns and bear markets better than other companies.

Along with the long-term investment strategies mentioned above. You should invest in companies that have the ability to profit from secular trends. These are companies that can take advantage of trends that go far beyond mere business cycles and reflect ongoing changes in society. Examples include economic liberalization, the retirement of the baby boomers, and the productivity gains available from continually evolving computer and communications technology.

Long-term investment strategies aren’t built by making a fast dollar, or profiting from inside information. They are built over time, and most importantly, by learning how not to repeat the market mistakes of the past.

Are there any other long-term investment strategies you ascribe to? What is one thing, clearer to you now, that you wish you’d done when you were starting out as an investor? Share your experience with us in the comments.

This post was originally published in 2016 and is regularly updated.