Hello and welcome back for Part 3 of our 4-part blog series on investing tips for the new investor. If you are just joining us you may want to go back and take a look at the first 2 parts of this 4-part blog series before continuing. That being said, the information that you will find in this blog should be useful no matter what you’ve already read before either here on our website or on another blog. Part 3 is chock-full of more great tips, advice and excellent info that any investor can use although it’s geared towards the new investor who is just getting started. So sit back, take mental notes if you wish and let’s get started. Enjoy.
- There’s a fine line between patience and stubbornness. Patience is certainly a virtue when it comes to investing in stocks. If you keep an eye on the businesses that you have invested in rather than their stock prices and have patience with them if their stock has recently fallen (but little else about the company has changed) you will probably do just fine. However, when a business is deteriorating and you are constantly hearing bad news about them while continuing to hold on to their stocks you may have crossed the line from patients into stubbornness and, in many cases, being a stubborn investor can cost you money. If you’re worried that you may have crossed the line ask yourself this question; “Would I buy this stock today if I didn’t already own it?”. If you don’t say “yes” then it’s time to sell.
- Use sound valuation models. When trying to determine what value a stock will have in the future you will use valuation models to determine those numbers. Always make sure to double check any projections or calculations that you make and, rather than using oracles as your guide, use DCF valuation models or similar models to get the best idea of future earnings.
- Know the facts. Before buying any stock you should thoroughly research the business that’s issuing it so that you can make your decision based on more than just price. For example, does the business have a meaningful ownership stake? Are there company insiders who have been buying or selling? If a mutual fund owns the company, what is the record of the managers of that fund? All of these bits of information will help you to make a determination as to whether or not to buy a specific company’s stock.
- Know when the tide is about to turn. We’ve all seen opportunities that exploded onto the scene, the kind that make headline news and have investors frothing at the mouth. If you can get in on these opportunities at the very beginning and ride the wave upward then of course go for it. It would be better however, to know when these opportunities are about to hit their ceiling and thus avoid getting in too late. For example, if the opportunity that you are looking at brags about the fact that they have successful medical doctors that have given up their practice to start ‘flipping’ real estate it’s probably a good sign that you shouldn’t get involved.
- Look for wide moats. Focusing your attention on businesses that have wide economic moats will usually help you to find the ones that will have higher earnings in 5 to 10 years. Companies that are constantly increasing the intrinsic value of their shares are the best to focus on as these will afford you the luxury of being able to hold onto them for a longer period of time.
- By based on price and value. Simply put, the main difference between an excellent investment and an excellent company is the price you pay for their stock. Certainly you should search for excellent companies but, if their stock price is out of line, you’ll still want to skip them. Purchasing stocks at an appropriate price for their value is a key aspect of successful investing.
As we mentioned earlier this is the 3rd part of our 4-part blog series. If you’ve been with us for all 3 parts so far then you have already gotten quite a bit of excellent stock investing information. We’ll be back with part 4 very soon and, if you haven’t had a chance to read parts 1 and 2 yet we strongly urge you to do so. All 4 parts of this blog series, when finished, will give the new investor a solid base for beginning their investing career. We hope you enjoyed today’s blog and that you’ll be back to join us soon for Part 4. See you then!