Knowing how to invest in stocks is one of the defining characteristics of becoming wealthy in almost any capitalist economy. While generally investing in stock market over a person’s life span can produce beneficial results, by learning how to optimize stock investments, far more wealth can be created in the same investment timeframe.
To give an idea of how important an advanced investment strategy is versus simply buying the entire stock market, the top stock market investors often beat the average investor by more than tenfold over a forty-year time horizon. Great investors like Warren Buffett and John Tudor Jones regularly beat stock market averages by more than 20%.
If an investor learns some of these same principles, then their life can be dramatically changed because they have increased their wealth far faster with wise investments.
Tip #1 – Determine the long term trends
Long-term trends create fortunes and make investing easier. Typical investors are caught up in the news of the day and what stock market analysts are telling them to invest in that week or that month. Following this advice is a recipe for losing money quickly. Great investors determine long-term trends and get in before the crowd does.
The early investors then sell to the people that are following the latest trend advice at an inflated price. The great stock market bubbles involved smart investors getting in early and selling to the less informed investors at the top of the market.
Tip #2 – Buy value, not hype
Buying value in stocks involves analyzing the fundamentals of a particular business. Like shopping for any other good or service, an investor wants to buy a stock when it is selling relatively cheaply for the value that it offers.
Tip #3 - Take a long term perspective
Once an investor spots a long-term trend, and buys companies that are priced cheaply for their value, the hardest part is waiting for the rest of market investors to catch up and invest in that sector. As long as investors are disciplined and performed the research correctly, eventually that sector will become overpriced. Then it is time to book profits and enjoy the feeling of being a successful investor.
The major mistake to avoid when investing in stocks is to jump from one investment to another. Not only will an investor miss long-term trends in profits, but the expenses of trading will reduce the portfolio.