Daily Gains Letter

How to Become a Successful Investor

By Sasha Cekerevac for Daily Gains Letter |

DL_Sasha_290113For the general public interested in investing in stocks, one needs to have a solid long-term investment strategy to become successful. Arbitrarily picking companies is not a sound investment strategy. There are several basic methods in which one can conduct research before diving into investing in stocks.

Over the short term, investing in stocks can be risky. This is why the average retail investor needs a long-term and comprehensive investment strategy.

One advantage that the retail investor has over institutions is that the investor has time on their side. What this means is that an investment strategy that looks for companies that are selling at a discount to the long-term value of the firm offers excellent long-term potential for profits.

The first basic investment strategy is to create a list of companies you would like to accumulate. The criteria for this vary dramatically, so one needs to conduct extensive initial research. Once you have identified which firms you are interested in accumulating, investing in stocks of companies on this list that incur pullbacks opens the door for an attractive buying opportunity.

While many people believe investing in stocks is simply gambling as you would in a casino, they are completely wrong. An investment strategy for buying stocks is actually the same as buying shares in a local business.

For example, let’s say there is a store in your neighborhood that is successful and you’d like to invest in it; however, the owner is asking too high of a price. You’ve identified a company you like, and you’ve come up with a valuation. The current market valuation, meaning the owner’s asking price, is too high, but you keep an eye on it.

If one day the owner expresses to you his interest in selling a share at a substantially lower price (perhaps due to other financial obligations), this would then be a great opportunity to buy if the price was less than your calculated valuation level.

An investment strategy for investing in stocks for the long-term is exactly the same. You identify companies you like and wait for an opportunity when the price is below a valuation level that you feel is fair.

Over the short term, the price might remain undervalued. Investing in stocks for the long term is all about using time to your advantage as an investment strategy.

One common mistake when it comes to investing in stocks is having too large a percentage of assets in only a couple of investments. Because there is the potential that a company that is undervalued remains undervalued or weakens even further, one needs to have a well diversified portfolio as part of their investment strategy.

However, by concentrating on companies that are continually increasing revenue, earnings, and cash flow, the potential of losses over the long term is certainly lower.

To be successful, one needs to shift their thinking away from the belief that investing in stocks on the stock market is gambling. Many believe that they will find that one stock that makes them rich; this is the wrong way to think about investing.

An investment strategy that’s ideologically similar to buying shares in a local business for the long term is a much more sound approach.

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