Every day the stock market tempts me to be a gambler and not an investor. Each day that I become a better investor, I am tempted to throw it all away for some risky trade. Becoming successful in the Stock Market is never something that is easily accomplished, and one of the main reasons is because it is just too easy to get caught up in the quest for fast and easy money. You make a few good investments, and just like that you feel like you are ready to take on some of the more riskier positions. The irony of it is that you built up most of your gains and confidence through conservative investments. So why would it make sense to go against what is working for you?
The answer is it makes no sense at all, but it sure does sound tempting! Who wouldn’t want to start investing more aggressively when they see that they are successful and profitable? It seems like a good enough idea, but in reality it’s just asking for trouble. It is crucial that you stick to your rules for investing success (you do have a set of rules to invest by, don’t you?), otherwise you are just increasing your risk for losses to your portfolio. This is easier said than done, especially in a market that is exploding with volatility. So here is a list of things to remind yourself when the temptation becomes unbearable:
- You are going against what has been working for you
- You are increasing your risk
- Are the potential profits so desirable that you need to ignore your own rules for long term investing?
- Has more aggressive investing worked for you in the past?
Remember that as an investor, your chances for success over the long term are significantly higher when you take on a conservative strategy. Avoiding the risky moves for your overall portfolio will be your ticket to long term success. This doesn’t mean you need to have your entire portfolio consist of boring low risk, low reward stocks, but it does mean that the majority of your portfolio should be positioned so that you can weather any financial disaster that could happen in the stock market.
Adam,
I am a regular reader of your colums and found it both interesting and educative. Its amazing when you say you stated only at the end of 2005.
Here are my rules of investing:
1.I invest for regular dividends and long term capital gains.
2. I choose companies that regularly payout a yearly dividend.
3. Among them, I choose fundamentally good companies (preferably near monopolies or cos with high market shares (50%) in their respective categories.
4.I invest a fixed amount every month into the company with the highest dividend yield calculated on that days price. ( I buy on the 5th of everymonth, if a holiday then 6th or 7th).
5. I buy companies that pay dividends in Jan, some others in Feb, still others in March and so on all the way uptil Dec. That way I have about 40 stocks and am assured of atleast one dividend every month.
6. Every month I buy the stock(s) that have fallen the most. I do not buy any stock above the price I have bought earlier. I buy other stocks if no stock in my portfolio has fallen. With every purchase I calculate how much I have reduced the cost of per share acquisiton.
7.I sell a stock only when it has risen 30% above my average purchase price. Otherwise I dont sell. I hold on to them for the dividends which range from 2.64% to 7.71%.
I have put down my rules which I follow very very diligently. I have been following these rules since Mar 07.
However my portfolio is down 23%. Which does not upset me too much since I am long term. But I cant help wishing that it could be up atleast 8-10% even in these troubled times.
Let me know what you think.
Regards,
KK
Thanks for the kind words Krishna. Your list is pretty solid, although personally I don’t focus my entire portfolio on dividend or value based stocks. Also, right now I’m done 15% for the year. Meanwhile the S&P500 is down roughly 40% for the year. So stay positive, we’re all pretty in the red for 2008.
i do agree, 2 or three moves a year is better than trading aggressively when it comes to both health and returns