A lot of my investment opportunities come from fundamental investing and cost investing. I adopt strategies similar to Warren Buffett not merely because he is a well known investor but simply because they take advantage sense in my experience.
That is the answer to successful stock investing. Do not listen to anyone simply because you think he is more experienced available investing then you're. Rather, aim to think and analyze and read more about your own before deciding which strategy most closely fits you. After you have developed your own investment philosophy, stick to it and trust only yourself.
My Investment Philosophy
1. Do not lose money.
As numerous people already know, Warren Buffett famously help with his two rules in stock buying a humorous manner in which Rule number 1 is "Never Lose money" while rule number 2 is " Do not forget rule number 1".
Capital preservation is essential just because a stock which has lost half its value will have to double in value before getting to in which you started. That is why you must be extremely cautious in your choice of stocks and that brings us to rule number 2.
2. Using a Margin of Safety
The margin of safety, simply put is a buffer that you put in place between that which you perceive to become the need for the stock and its price. If you value a stock to become worth 1 dollar and you only purchase it if its price is 50cents, your margin of safety factors are 50 percent.
Deciding how much margin of safety you need to share with a regular varies for businesses in various industries and it is another topic in itself.
In conclusion, a margin of safety is essential to protect your capital in the event you were wrong in your initial assessment of the stock pick. This way, even if you were wrong, you'd have obtained the stock in a much lower price then if you had not catered for a margin of safety.
3. Invest in the future
It's impossible to time the market, but many people appear to think other wise. They buy once the stock dips slightly and hopes that in the near future they are able to market it for a profit. These people usually adopt a "hit and run" strategy where they're happy with creating a few 100 dollars every time they make a trade. They also have a cut loss strategy where they'll exit the trade when the price drops beyond a specific amount within times of purchasing the stock.
The truth about the stocks marketplace is that real cash is made a few weeks. If you're frequently entering and exiting the marketplace, most likely throughout the few days of a real rally in price, you will not be in the marketplace, thus passing up on earnings.
Investing in the future also helps you save on commissions paid to the broker, capital gain taxes and puts the strength of compounding into play. The main difference between exchanging the marketplace and purchasing for the long term is important and should not be prevented.
4. Knowing when to sell so when to not sell
Despite the fact that I advocate investing in the future, i am not saying holding on to my investments forever. After i value a regular, I already have in your mind how much the stock is worth and for that reason curently have an exit price in mind. The objective of value investing is to purchase this stock in a significant discount from its value.
However, there could be instances when the market is euphoric and the price of the stock surges way beyond what I have valued it at. At this point of your time, I will reassess the organization to see if I have left out any key news or factors that could result in the rise in price. If my asessment of the company remains the same, I'll sell the stock because there is no reason why I should require advantage of the insanity from the market.
It is important not to be greedy at this time of your time and increasing the exit price you've set. Have an exit price and stick to it.
The reverse holds true also. Many people panic and sell once the price drops which doesn't make sense. When the price of a stock drops, look into the fundamentals again. If nothing is different, your assessment of their value should be the same and this implies that the stock is at a much greater discount then that which you have previously bought at. In this case, you need to go ahead and take opportunity to buy in more of the stock.
5. Keeping Cash with you when there aren't any good stocks to purchase
There are many reasons to keep money with you when there aren't any good stocks to buy. Lots of people find it difficult to do this. As soon as they've some money in hand they would like to buy some stocks because if they don't, they feel that they're not on the market and thus not "investing".
Also, keeping money with you allows you to take advantage of sudden dips in the stock prices due to some market fluctuations which aren't resulted from the change in the businesses fundamentals. In these cases, you need to average down and buy more of that stock. The worst thing that can happen to you isn't having cash to average down on an order which has now presented a greater discount then before, because of your have to always keep all of your profit the marketplace to "feel that you are investing".