Topic: Value Stocks

Quick-Return Investments: Be Careful Not To Sell Your Best Holdings Too Soon

Some investors look for quick-return investments, yet these same investors often miss out on bigger profits by selling their best picks too quickly. Choosing stocks that can be held over a longer period of time is a better strategy.

There is no denying the immediate appeal of taking a fast profit. However, most successful investors find that over long periods much of their profit comes from a handful of their best investments—stocks that went up much more than they ever expected. If you are too quick to take profits, you’ll wind up selling those top-performing picks just when they’re beginning to rise.

One thing to consider about quick-return investments is the market’s volatility. When volatility is heightened, it makes it harder for in-and-out traders to make money.


Spot value at a cheaper price

“As more investors come to recognize the value of these stocks, they begin to rise. Well-informed investors who recognized the value while the stock lingered at a cheaper price begin to reap the benefits of their foresight.” Pat McKeough shows you how to uncover hidden value in this invaluable report, Canadian Value Stocks: How to Spot Undervalued Stocks.

 

Read this FREE report >>

 


Neither the best short-term or quick-return investments will give you the same results as a good long-term investing strategy

When you start investing, you may think the secret to investment profit and finding the best stock picks is to “buy low, sell high.” But that’s hard to do. You’ll often buy just before prices fall, or sell just before they further rise.

In fact, what looks like the best short-term investments won’t give you the same results as a good long-term investing strategy.

Try utilizing these strategies instead of seeking out quick-return investments

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.

These long-term investment strategies have long been part of the advice we give in our investment services and newsletters and they will enhance your long-term investment results.

  1. Instead of quick-return investments, build a balanced portfolio

We recommend sticking to our three-part Successful Investor approach. It calls for diversification in the five economic sectors, and advises downplaying or avoiding stocks in the broker/media limelight.

As part of their portfolio diversification strategy, most investors should have holdings in most, if not all of these five sectors. The proper proportions for you depend on your temperament and circumstances.

For example, conservative or income-seeking investors may want to emphasize utilities and Canadian banks in their portfolio diversification. That’s mainly because of their high and generally secure dividends.

More-aggressive investors might want to increase their portfolio weightings in Resources or Manufacturing stocks. For example, more-aggressive investors could consider holding as much as, say, 25% to 30% of their portfolios in Resources.

However, you’ll want to spread your Resource holdings out among oil and gas, metals and other Resource stocks for diversification and exposure to a number of areas.

If you diversify as we advise, you improve your chances of making money over long periods, no matter what happens in the market.

  1. Instead of quick-return investments, deploy proven strategies for compound interest

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 stocks and fixed-return, interest-paying investments, such as 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—high brokerage commissions, for instance. 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.

  1. Instead of quick-return investments, look for hidden assets

There are many things to look for when evaluating a stock—and one of the most important is hidden assets. This includes real estate on the balance sheet at historical value or research and development.

The best time to find hidden assets is when they’re still hidden, long before the company begins taking steps to profit from them. Understanding and seeking out hidden assets while you’re evaluating a stock can add enormously to your profits in the course of an investing career. But you need patience to profit from them, because they can stay hidden for a long time after you buy.

Hidden assets can also cut your risk. Stocks with hidden assets are likely to hold up better than those whose assets are easier to spot, since they are the last stocks that experienced, successful investors sell. When times are good, on the other hand, stocks with hidden assets tend to do better than average. Good times give them opportunities to put their hidden assets to work.

Quick-return investments are an example of aggressive investments

Aggressive stocks can give you bigger gains than more conservative stocks. But they also expose you to a greater risk of loss. That’s why we recommend limiting your aggressive holdings to no more than, say, 30% of your overall portfolio.

Ultimately, the percentage of your portfolio that should be held in either conservative or aggressive investments depends on your personal circumstances and risk tolerance—and your own growth investing strategy. An investor with a longer time horizon or without the need for current income from a portfolio can invest more money in aggressive stocks.

Bonus Tip: Add value stocks to lower your portfolio’s volatility. Value stocks are stocks trading lower than their fundamentals suggest. They are perceived as undervalued and have the potential to rise.

Most successful investors hold some growth stock picks and some value stocks at any given time, depending on where they discover the best opportunities.

A long-term strategy provides more ease of mind and security than most short-term investments. But is that enough to dissuade you from quick-return investing?

Short-term investment strategies don’t always end with a loss (or minimal gains). Share one of your stories of profiting from a quick-return investment.

Comments

Tell Us What YOU Think

You must be logged in to post a comment.

Please be respectful with your comments and help us keep this an area that everyone can enjoy. If you believe a comment is abusive or otherwise violates our Terms of Use, please click here to report it to the administrator.