10 Tips for Long-Term Investing

While you can always find an exception to every rule, there are some basic fundamental principles in long-term investing that every investor should understand. So whether you are a new investor, or have been in the market for decades, it’s important to keep these ten things in mind:
1. Sell the losers and ride the winners
Winners – Peter Lynch was famous for talking about “tenbaggers” –  investments that increase tenfold. But if you hold strong to your own rule of selling after a stock has tripled, you’ll never have a tenbagger. Don’t underestimate a stock that is performing well because you feel you have to stick to a strict personal rule, especially if that rule is arbitrary and not based on an understanding of your investment’s potential.
Losers – Unfortunately, there is no guarantee that a stock will ever bounce back. Just as it’s important not to underestimate a good investment’s potential, it’s equally important to recognize when an investment is performing badly. Don’t be afraid to swallow your pride, admit your mistake, and move on before the loss becomes greater.
2. Don’t chase a hot tip
No matter where a tip comes from or how sure that individual is about a certain stock’s success, don’t accept it as fact. When you make any investment, you should always know the reason why you are doing so. Take the tip, but then do your own research and become an informed investor.
3. Don’t sweat the small stuff
As a long-term investor, it’s important to train yourself not to panic over the day to day movement. Remind yourself of the big picture, and trust the research you’ve done and the philosophies you have committed to. Sure, the active traders use these daily fluctuation as a way to make gains, but it’s also important to remember that being a long-term investor comes with a completely different strategy.
4. Don’t overemphasize the price-earnings ratio
Oftentimes, investors place too much importance on this P/E ratio. Remember that this is only one tool in many that should be used to dictate your decisions. This ratio also needs to be understood within a context. Buying and selling simply based on the P/E ratio is dangerous and ill-advised.
5. Be cautious of penny stocks
It is a common misconception  that there is less to lose in buying low-priced stocks. But a bad $5 company has just as much downside risk as a $75 company. And really, the $5 stock probably carries more risk than a higher priced stocked which would be more highly regulated.
6. Commit to your strategy
While there is no one strategy that is inherently better than another, it is important that once you decide on your approach, you stick to it. If you fluctuate between stock-picking strategies, then most likely, you will experience the worst of each one. Have confidence that your philosophy makes sense for you and will pay off in the long run.
7. Keep your eye on the future
Just like you don’t want to be chasing tips, you also don’t want to be chasing what made money yesterday. Remember that you are making informed decisions based on things that have yet to happen. Yes, use the past as one of your many tools, but it’s what happens in the future that matters most.
8. Be in it for the long-term
For those who are new to the market, large short-term profits can be quite alluring. But adopting a long-term perspective is key for any successful investor. Remember that investing and trading are two different ways to approach the market, each with their own set of risks and skill sets. One is not necessarily better than the other, but trading can be very dangerous for someone without the proper time, education and financial resources.
9. Be open-minded
It’s important to realize that many great investments are not household names. Thousands of smaller companies have the potential to become the blue-chips of tomorrow. In fact, historically, small caps have had greater returns than large caps. This is not to say that you should ignore the S&P 500 altogether, but rather, be sure to stay open to all possibilities and understand that some of the lesser-known companies could be the source of some of your biggest gains.
10. Be aware of taxes, but don’t worry
The primary goal in investing is to grow and secure your money. And while this means you want to minimize the amount of tax you pay, it’s a dangerous strategy to let taxes guide your decisions. Yes, you should be concerned with tax implications, but just remember that they are a secondary concern.
If you’d like to talk more about how you can become a successful long-term investor please contact me at [email protected] or (831) 801-4069.