The easiest thing when we start in the world of investing is keep failing all the time, especially if we thinks that day trading is the way to go, which is something that is promoted repeatedly by the industry.
That is the easiest way to start nowadays, with the advent of internet and the possibilities of being able to do live trading.
Fifty years ago only a few were so “lucky” to trade the markets during the real session.
The bucket shops described by Jesse Livermore were the inspirers of what we can see today in the retail trading markets so keen on frequent trading.
I am not trying to say that long term investing is per se a perfect strategy since it has some problems when the small investors get caught in the hype of investing during the peak of a bubble
This is because many small retail investors are attracted to invest when everybody is talking about the markets, which means, normally during the final phase of a bull market. In other words, before they collapse.
Stock investing tips
Investing is good, but hardly ever when everybody else does. It is better to invest when “nobody” is aware of it or when it is not that popular because that means that the stock prices are very likely “cheap”.
If we want to invest we should look for moments like USA 1929 or Japan 1989.
Another question is if we are following a strategy of accumulating assets every year, in which case it will not matter if those assets are falling or rising.
For example, 1.000 USD invested in 1929 lost almost all their value quickly, but 1.000 invested in 1932 increased their value significantly in a few years.
Investing in the stock market tip
Once known these premises it is moment to name a few tips to invest in the stock market. And let me repeat, investing is not speculating or trading.
- In average, it will be better to invest in the long run than to try to do trading in the short run In the long run the majority of traders will make some money. In the short run the majority will lose all their money. Plus do not you think you will be able a lot more money than investing for the long term easily.
- Never follow the gurus, agencies, brokers, banks or anyone similar advice. Normally these kinds of advices grow up when the stock market is close to its peak. Although that kind of “advice” is actually responding to a demand that always sprung like a mushroom when the market is doing well for a long time. It is difficult not to follow the crowd.
- It is very difficult to select the company that will make us rich in coming 15 years. For 1.000 guys who put all their savings in Apple there is 1.000.000 that put their money in other companies, many of which ended up going bankrupt. That is why it is always advisable to invest in a selection of stocks or some index. This is diversification.
- The stock market is not for kids. We have to be capable of assuming our losses without following any kind of emotions. Whether we follow someone’s advice or ours we have to accept our mistakes and losses as our responsibility.
- It is also possible to invest in other assets that are not stocks. As a general rule it is important not to invest when the markets seems hyped, whether it is gold, bitcoin, commodities, property, etcetera. It will always be better when the markets are “quiet” or when “there is blood in the streets”. In other words, try to buy in moments like 1907, 1921, 1974, 1987, 2003 or 2008. Although it is possible that we buy too soon, as in 1929 when the market had fallen 30% and kept falling dramatically the coming two years.
- The small stocks and those from exotic countries usually offer better returns in the long run, but also more risk. It is better that those without experience do not invest in small cap stocks since they are very risky.
- It is also important not to sell when everybody is selling. A long term investor must resist stoically all bad moments and overcome the temptation to sell his portfolio when the market has collapsed. In the majority of cases it proves to be a very bad idea thereafter.
- It is always good to have some ounce of gold in the pocket in case that the things go to the worst case scenario. In case like those having a couple of pieces of gold can save your way out of any country. Simply think in cases like Russia in 1917.
- With respect to the previous point, it is good to have some knowledge of the cycles of the economy, like the Kondratiev cycles. Along history there have been ages where some stocks behaved better than others, or when bonds outperformed all assets.
- The best for long term investing is that we should not be all day thinking about the markets. In fact, it is better if the majority of people stay away from them. Even successful speculators like Nicolas Darvas used to say that they proffered to be away from the markets because being surrounded by the crowd caused him to behaved in ways he would not have done when alone.
- One of the classic rules when we invest is not risking money we cannot afford to lose. Otherwise we will be always looking the assets and will be subjected to emotions. The stock market is not a good place for cowards but neither it is for impulsive people.
It is sure there are more tips left, but these are many of the most basic respecting the long term investing, some as: diversify, never invest when there is euphoria, never sell in moments of panic.
And do not forget that long term investing is different than short term trading.
In the second case many of the advices will be the same but others may change.
Regards and good investing.