Long Term Approach To Stock Market Riches
All the investing greats, be it Peter Lynch, John Singleton, or Warren Buffett, are considered greats because they not only made money in the stock market, but they made it year in, year out because they approach it with a long-term view. People who are just looking to make a killing in the short term often end up losing their shirt and then some. This is not what this article is about. If you want to learn about how to be a long term winner in the stock market, read on.
1. Clearly state your objective. Considering factors such as your age, risk tolerance, number of children, and so on, you will have to define what type of portfolio you're going to build. This is going to be the measuring stick by which you'll analyze every potential opportunity and decide whether or not it's worth going for, as well as when it's time to opt out. Avoid being in the situation where you react to the market, this is rarely good and almost always very costly.
2. Choose a strategy. There are literally thousands of investment tactics and strategies out there, and an equally high number of books detailing each one of them. Trying to follow several is counter-productive, not to mention confusing. Your best bet is to pick one that's the best fit for your financial goals and stick to it. Sure, there will probably be moments where you have to do a little tweak here and there but or the most part, the simpler your playbook, the more smoothly the game plays out.
3. Assess possible risks. Your ability to assess the risks your investment carries will be critical to your success. The key here is to look at them realistically, not with wishful thinking. Your management plan must be as effective and practical as possible in order to minimize your losses and in turn maximize your profits. This step is to be completed BEFORE evaluating profit potential, to avoid you getting so excited about your potential profits that you fail to properly evaluate the risk you'll be 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. Look for other options. You can look around and see if there are any comparable (or better) investments in therms of risk, profit potential, or simplicity of management. This little extra step can simplify a lot of things for you, not to mention make you some extra money in the long run.
6. Analyze the obstacles. If you did go through the trouble of having an initial strategy, you will find that this step is a natural continuation of it. By anticipating the possible shortcomings of every investment, you put yourself in the position of doing just that.
7. Have your plan B handy. Set specific boundaries as to when you should get out of an investment. Whether everything goes wrong and you need to bail out or you've hit it big and need to move on to other investments, having explicit, well laid-out limits prevents you from losing returns or just losing more money.
8. Choose correctly. You should be aware that investing is not exactly something that you can pursue offhandedly. So before you take the big leap and put your money in the market, you'd be well-inspired to take a step back and analyze your investing project in its entirety. You should be able to see the big picture as opposed to bits and pieces here and there. If it doesn't hold up, or doesn't show that it's worth your efforts, don't hesitate to scratch it: you'll be better off starting a new plan from scratch than losing on a big gamble.
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. At set intervals, go over your plan. If a couple of missteps here and there cost you a lot of money, try to identify them and make sure that you don't keep repeating them. Don't give up: we learn more from our failures than from our successes. Hang in there, make small changes; keep what works and discard what doesn't until you all your personal success ingredients come together and you carve out your very own formula for stock market riches.
1. Clearly state your objective. Considering factors such as your age, risk tolerance, number of children, and so on, you will have to define what type of portfolio you're going to build. This is going to be the measuring stick by which you'll analyze every potential opportunity and decide whether or not it's worth going for, as well as when it's time to opt out. Avoid being in the situation where you react to the market, this is rarely good and almost always very costly.
2. Choose a strategy. There are literally thousands of investment tactics and strategies out there, and an equally high number of books detailing each one of them. Trying to follow several is counter-productive, not to mention confusing. Your best bet is to pick one that's the best fit for your financial goals and stick to it. Sure, there will probably be moments where you have to do a little tweak here and there but or the most part, the simpler your playbook, the more smoothly the game plays out.
3. Assess possible risks. Your ability to assess the risks your investment carries will be critical to your success. The key here is to look at them realistically, not with wishful thinking. Your management plan must be as effective and practical as possible in order to minimize your losses and in turn maximize your profits. This step is to be completed BEFORE evaluating profit potential, to avoid you getting so excited about your potential profits that you fail to properly evaluate the risk you'll be 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. Look for other options. You can look around and see if there are any comparable (or better) investments in therms of risk, profit potential, or simplicity of management. This little extra step can simplify a lot of things for you, not to mention make you some extra money in the long run.
6. Analyze the obstacles. If you did go through the trouble of having an initial strategy, you will find that this step is a natural continuation of it. By anticipating the possible shortcomings of every investment, you put yourself in the position of doing just that.
7. Have your plan B handy. Set specific boundaries as to when you should get out of an investment. Whether everything goes wrong and you need to bail out or you've hit it big and need to move on to other investments, having explicit, well laid-out limits prevents you from losing returns or just losing more money.
8. Choose correctly. You should be aware that investing is not exactly something that you can pursue offhandedly. So before you take the big leap and put your money in the market, you'd be well-inspired to take a step back and analyze your investing project in its entirety. You should be able to see the big picture as opposed to bits and pieces here and there. If it doesn't hold up, or doesn't show that it's worth your efforts, don't hesitate to scratch it: you'll be better off starting a new plan from scratch than losing on a big gamble.
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. At set intervals, go over your plan. If a couple of missteps here and there cost you a lot of money, try to identify them and make sure that you don't keep repeating them. Don't give up: we learn more from our failures than from our successes. Hang in there, make small changes; keep what works and discard what doesn't until you all your personal success ingredients come together and you carve out your very own formula for stock market riches.
About the Author:
Before you invest, make sure you read our extensive stock market success article. You can also find more helpful finance advice on our personal finance blog, Money Galaxy.
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