Being A Long Term Winner In The Stock Market
Albert Einstein has often referred to compounding as the 8th wonder of the world. Indeed, the power of compounding is astonishing. The only problem is that at the beginning you won't see much of a reward. Yet this is the key to winning in the stock market: over the long term, you will make a lot of money because time is on your side. This article is not about get-rich-quick schemes involving the stock market. It's about setting up your plan so that you position yourself to be sitting pretty a couple of decades from now. Let's get started.
1. Set your goal. Take your personal factors into consideration to come up with the type of portfolio that best suits you. Then analyze every potential investment by thinking about what you want out of it and whether or not it fits into your overall investment plan. Just like a sports coach, have your X's and O's ready, don't react to the market. This will save you a lot of headaches and money.
2. Devise a strategy. If you look up stock market investment strategies, it seems as if everyone has THE winning formula for success in the stock market. Obviously, they can't all be right, although there are some time-tested principles that all the greats have never strayed from. Find one of these strategies that you're most comfortable with, take it, and literally run with it. As in everything, you might come to a point where you have to improvise and make a little detour, but those moments should be the exception; changing your plan when a situation arises should never be the rule.
3. Determine potential risks. Make sure that you're able to correctly determine risks that undoubtedly come hand in hand with every opportunity. One way to do so is to look at your potential investments with as critical an eye as possible, and to devise your management plan accordingly. You'll be happy you did because you will be able to minimize your losses even in the event that a particular investment turns out to be a money-losing proposition. Notice how this step comes before profit assessment? This is to make sure you don't get overwhelmed with excitement before you size up the gamble you're taking.
4. Think about profit potential. One of the hardest parts about investing is knowing when to cash out once you're riding a winner. You should have a set threshold where you sell off enough to at least recoup your initial investment, and then ride the profits as long as you can. Know when and how to get out.
5. Study possible alternatives. A little extra homework might unearth other investments that carry fewer risks or a better profit potential; or maybe there is another strategy that will make things simpler for you (and hopefully bring you a little more money in the process).
6. Evaluate the hurdles. This falls right in line with having an initial strategy that you follow from the beginning. Every time you consider an investment, it will bring about its very own unique characteristics, and its risks. If you have already gone through the process of anticipating those risks, you stand a much better chance of minimizing the risk of losing money.
7. Draw up your plan B. Your plan B should dictate what you do when things don't go exactly as planned (in either direction). You shouldn't have to be deciding on the fly when it's time to get out of an investment, it should all be laid out and you should be responding to certain criteria, not to panic or elation. This helps you avoid losing on potential returns or better yet, helps you avoid losing more money than you've already sunken in a losing investment.
8. Make the right choice. Investing is time-consuming, so before you jump in, take one good look at your overall investment plan. Hopefully, by then, you've been able to put together all the pieces of the puzzle and can see if the whole thing holds up and is worth pursuing. In case it isn't, you can take solace in the fact that it's easier drawing up a new plan than recouping thousands of dollars worth of losses in the stock market.
9. Aim high. So your mind is made up on an investment, right? Well then just go for it and stop over-thinking things. You've done all the thinking you needed to in the previous steps. As corny as it sounds, if you give everything you got, you'll be a winner regardless of the monetary outcome. Even if you lost money, you won't have lost that much because you've learned to hedge your bets. All you have to do is following through on your game plan and the long term benefits will follow.
10. Debrief. On a regular basis, look back over your plan and analyze your results. If you picked out some duds and suffered heavy losses, try and figure out where you went wrong so that you don't make the same mistakes next time. The worst thing you can do at this point is give up because then you won't have learned anything from your mistakes. Instead, constantly tweak your approach and refine your technique until you find that perfect strategy. Once you've done that you'll be on your way to success in the stock market.
1. Set your goal. Take your personal factors into consideration to come up with the type of portfolio that best suits you. Then analyze every potential investment by thinking about what you want out of it and whether or not it fits into your overall investment plan. Just like a sports coach, have your X's and O's ready, don't react to the market. This will save you a lot of headaches and money.
2. Devise a strategy. If you look up stock market investment strategies, it seems as if everyone has THE winning formula for success in the stock market. Obviously, they can't all be right, although there are some time-tested principles that all the greats have never strayed from. Find one of these strategies that you're most comfortable with, take it, and literally run with it. As in everything, you might come to a point where you have to improvise and make a little detour, but those moments should be the exception; changing your plan when a situation arises should never be the rule.
3. Determine potential risks. Make sure that you're able to correctly determine risks that undoubtedly come hand in hand with every opportunity. One way to do so is to look at your potential investments with as critical an eye as possible, and to devise your management plan accordingly. You'll be happy you did because you will be able to minimize your losses even in the event that a particular investment turns out to be a money-losing proposition. Notice how this step comes before profit assessment? This is to make sure you don't get overwhelmed with excitement before you size up the gamble you're taking.
4. Think about profit potential. One of the hardest parts about investing is knowing when to cash out once you're riding a winner. You should have a set threshold where you sell off enough to at least recoup your initial investment, and then ride the profits as long as you can. Know when and how to get out.
5. Study possible alternatives. A little extra homework might unearth other investments that carry fewer risks or a better profit potential; or maybe there is another strategy that will make things simpler for you (and hopefully bring you a little more money in the process).
6. Evaluate the hurdles. This falls right in line with having an initial strategy that you follow from the beginning. Every time you consider an investment, it will bring about its very own unique characteristics, and its risks. If you have already gone through the process of anticipating those risks, you stand a much better chance of minimizing the risk of losing money.
7. Draw up your plan B. Your plan B should dictate what you do when things don't go exactly as planned (in either direction). You shouldn't have to be deciding on the fly when it's time to get out of an investment, it should all be laid out and you should be responding to certain criteria, not to panic or elation. This helps you avoid losing on potential returns or better yet, helps you avoid losing more money than you've already sunken in a losing investment.
8. Make the right choice. Investing is time-consuming, so before you jump in, take one good look at your overall investment plan. Hopefully, by then, you've been able to put together all the pieces of the puzzle and can see if the whole thing holds up and is worth pursuing. In case it isn't, you can take solace in the fact that it's easier drawing up a new plan than recouping thousands of dollars worth of losses in the stock market.
9. Aim high. So your mind is made up on an investment, right? Well then just go for it and stop over-thinking things. You've done all the thinking you needed to in the previous steps. As corny as it sounds, if you give everything you got, you'll be a winner regardless of the monetary outcome. Even if you lost money, you won't have lost that much because you've learned to hedge your bets. All you have to do is following through on your game plan and the long term benefits will follow.
10. Debrief. On a regular basis, look back over your plan and analyze your results. If you picked out some duds and suffered heavy losses, try and figure out where you went wrong so that you don't make the same mistakes next time. The worst thing you can do at this point is give up because then you won't have learned anything from your mistakes. Instead, constantly tweak your approach and refine your technique until you find that perfect strategy. Once you've done that you'll be on your way to success in the stock market.
About the Author:
Before starting to invest, make sure you read our extensive stock market success report. You can also find more financial tips on our personal finance blog, Money Galaxy.
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