If you want to discover how to select stocks for long-term investment growth and portfolio returns, then you will want to read these tips
There is no denying the immediate appeal of taking a fast profit. However, most successful investors find over long periods that much of their profit comes from a handful of their best investments—stocks that went up much more than they ever expected. All in all, if you are too quick to take profits, you’ll wind up selling your best picks when they are just beginning to rise.
Here’s how to select stocks for long-term investment growth and returns.
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor. How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
How Successful Investors Get RICH
Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor.
How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.
How to select stocks for long-term investment profits: Buy growth stocks
Although growth stock picks can be volatile, they can make good long-term investments. They may be well-known stars or quiet gems, but they do share one common attribute—they are growing at a higher-than-average rate within their industry, or within the market as a whole, and could keep growing for years or decades.
For most investors in growth stocks, you should limit your aggressive growth investment holdings to a smaller part of your overall portfolio. But growth stocks overall can contribute to higher returns, especially if you always focus on investment quality first.
Here are some tips for selecting the best growth stocks as long-term investments:
- Always review the balance sheets of the growth stocks you want to invest in.
- While you are looking at balance sheets, look for hidden assets like real estate. At times, the hidden value in a company’s real estate can even come to exceed the market value of its stock.
- When investing in the most speculative growth stocks, use our “sell-half” rule. This says that if a stock you own has doubled, you should sell half so you get back your initial stake. If you are too slow to sell speculative stocks in your growth portfolio, your profits, and even your principal, can evaporate all too quickly.
- Try to find growth stocks that have ownership of strong brand names and an impeccable reputation. Customers keep coming back to these businesses, and will try their new products.
How to select stocks for long-term investment profits: Always include dividend stocks
The best long-term dividend stocks can be found by focusing on these key factors:
- A long-term record of dividend payments
- A recent dividend increase
- Management’s public commitment to a dividend
- Being in a non-cyclical industry
- Limited exposure to exchange rate/political risk
- An attractive balance sheet
- A record of earnings and cash flow
- Industry prominence
How to select stocks for long-term investment success: Focus on holding for the longer term
In our view, your goal as an investor, particularly if you follow an investing strategy like the one we recommend, is to make an attractive return on your investments over a period of years or decades. Failure means making bad investments that leave you with meagre profits or losses.
Unsuccessful investors can still make some profits. They just don’t make enough to offset the inevitable losses and leave themselves with an attractive return. If you focus on the idea that you never go broke taking a profit, you may be tempted to sell your best investments whenever it seems the investment outlook is clouding over.
On occasion, you may succeed in selling just prior to a major downturn, and buying back at much lower prices. More often, prices will soon hit bottom and move up to new highs. If you buy back, you’ll pay higher prices. If you had followed this strategy with Canadian bank stocks, for example, you could have missed out on some big gains over the years.
In hindsight, market downturns are easy to spot. Spotting them ahead of time is much harder, and impossible to do consistently. After all, if you could consistently spot market downturns ahead of time, you could acquire a large proportion of all the money in the world, and nobody ever does that.
The problem is that you’ll foresee a lot of market downturns that never occur. All too often, the market-downturn clouds disperse soon after skittish investors have sold. Good reasons to sell do crop up from time to time, of course, even if you follow a long-term conservative investing approach. But “You’ll never go broke taking a profit” is not one of them.
Use our three-part Successful Investor approach to help you select stocks for long-term investment success
- Hold mostly high-quality, dividend-paying stocks.
- Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
- Downplay or stay out of stocks in the broker/media limelight.
What investments do you focus on for long-term profits?
What is your criteria for choosing profitable long-term investments?