A lot of my investment opportunities come from fundamental investing and value investing. I adopt strategies similar to Warren Buffett not simply because he is a well known investor but simply because they make the most sense to me.
That's the answer to successful stock investing. Don't pay attention to anyone just because you think he's more knowledgeable in stock investing then you're. Rather, seek to think and analyze and browse more on your own before deciding which strategy most closely fits you. After you have developed your personal investment philosophy, stick to it and trust only yourself.
My Investment Philosophy
1. Don't lose money.
As numerous people already know, Warren Buffett famously help with his two rules in stock investing in a humorous way in which Rule # 1 is "Never Lose money" while rule number two is " Remember rule number 1".
Capital preservation is essential because a stock that has lost half its value will have to double in value before getting back to in which you started. That's the reason you have to be extremely cautious in your selection of stocks which brings us to rule number two.
2. Using a Margin of Safety
The margin of safety, to put it simply is a buffer that you simply set up between what you perceive to be the value of the stock and its price. If you'd prefer a regular to be worth 1 dollar and also you only buy it if its price is 50cents, then your margin of safety factors are 50 percent.
Deciding how much margin of safety you need to share with a stock varies for businesses in different industries and it is another topic by itself.
In summary, a margin of safety factors are necessary to protect your capital in the event you were wrong inside your initial assessment of a stock pick. That way, even though you were wrong, you'd have purchased the stock at a reduced price then if you had not catered for any margin of safety.
3. Invest in the future
There is no way to time the market, however, many people seem to think other wise. They're buying once the stock dips slightly and hopes that soon they are able to market it for a profit. These folks usually adopt a "hit and run" strategy where they are contented with making a few 100 dollars every time they create a trade. They likewise have a cut loss strategy where they'll exit the market if the price drops beyond a specific amount within days of purchasing the stock.
The reality regarding the stocks market is that real cash is made a few weeks. If you're frequently entering and exiting the marketplace, chances are that throughout the couple of days of the real rally in price, you will not maintain the market, thus missing out on earnings.
Investing for the long term also saves you on commissions paid to the broker, capital gain taxes and puts the power of compounding into play. The main difference between exchanging the market and buying for the long term is important and should not be prevented.
4. Knowing when you should sell and when not to sell
Even though I advocate investing for the long term, that doesn't mean holding on to my investments forever. When I value a regular, I curently have in your mind just how much the stock is worth and therefore already have an exit price in mind. The purpose of value investing is to purchase this stock at a significant discount from its value.
However, there might be instances when the marketplace is euphoric and also the price of the stock surges way beyond things i have valued it at. At this point of time, I'll reassess the organization to see if I've omitted any key news or factors which could be responsible for the rise in price. If my asessment of the company continues to be same, I'll sell the stock since there is no reason why I ought to not take advantage of the insanity from the market.
It is important not to be greedy at this time of your time and increasing the exit price you have set. Have an exit price and stay with it.
The reverse is true also. Many people panic then sell once the price drops and that doesn't seem sensible. When the cost of a stock drops, look into the fundamentals again. If nothing has changed, then your assessment of its value ought to be the same and this implies that the stock is at a much greater discount then that which you previously purchased at. In this instance, you should take the chance to buy in more of this stock.
5. Keeping Money with you when there aren't any good stocks to purchase
There are many reasons to keep money with you when there aren't any good stocks to purchase. Lots of people find it hard to do that. As soon as they have some money at hand they would like to buy some stocks if they do not, they feel that they're not on the market and therefore not "investing".
Also, keeping money with you allows you to take advantage of sudden dips within the stock prices because of some market fluctuations which are not resulted from the alternation in the businesses fundamentals. In these cases, you should average down and purchase more of that stock. The worst thing that may happen to you is not having cash to average down on an order which has now presented a larger discount then before, due to your have to always keep all your profit the marketplace to "feel that you are investing".