You Don’t Have To Be a Genius To Become a Winning Investor. Just Follow These 5 Tips (*).
(*): From the Best Investors.
Inflation has reached 7.9% in America in February 2022. The Fed is just starting to take measures to fight this galloping inflation which will increase further in the coming months. Those who believed Jerome Powell when he talked about “transitory inflation” at the beginning of 2021 will have to pay the price.
Because the problem with this inflation is that it accelerates the inevitable decline in your U.S. dollar purchasing power. To protect yourself from the consequences of this inflation, you will have to invest.
To maintain the same purchasing power since 1990, you should have invested in assets that would have allowed you to turn $1,000 into $2,170:
That's a 117% return in 22 years. This is something that can be done with the stock market. As proof, here is the return on investment for a person who invested $1,000 in 1990 in an ETF tracking the S&P 500:
If you had been patient enough, you would have $25,828 today. That's a return of 2482.8% in 22 years.
To take advantage of this, you'll have to take the plunge and invest. This is where the problem lies because many people think that to become a winning investor you have to be a genius. This is a total fallacy, and I'm going to give you the 5 simple tips that the best investors follow to generate profits in the stock market.
1. Say no to procrastination, invest today.
Some people spend their time putting off until tomorrow what they should do today. This annoying habit has a name: procrastination. Many apply, without even realizing it, the same pattern when it comes to investing. They put off until later what they should do now.
The sooner you invest, the better for your future. The biggest successes in investing are made over time. Be patient and consistent, but most importantly, get started!
It's better to make a mistake that you can learn from and then do better than to never take action out of fear. Those who are afraid of making mistakes never make winning investments. With time, you will be able to limit your mistakes and become one of the best investors.
2. Become master of your emotions.
What is the investor's number one enemy? His emotions!
Your emotions will always push you to make bad choices. The best investors know very well that they must base their decisions on their sense of logical reasoning above all.
So, whatever the period, you must step back to act by thinking of 5, 10, 20 years ... Remember this quote from Warren Buffett:
“My favorite holding period is forever.”
Before you buy a stock, ask yourself like Warren Buffett if you would feel comfortable holding it forever. If the answer is yes, then you know what you should do. If the answer is no, you should probably choose another stock that you have more confidence in.
Having absolute confidence in the actions you are going to invest in will help you to better control your emotions in the long run.
3. Have a diversified portfolio, adapted to your profile.
Among the best investors, diversification is still a matter of debate. Some, like Peter Lynch, are absolute fans, while others, like Warren Buffett, say that it is not useless when you are confident in your choices. Nevertheless, Warren Buffett holds nearly 50 stocks in his portfolio.
But the 4 most important stocks he owns represent 72% of his portfolio!
The advice here is to choose a diversification strategy adapted to your profile. For some, it will be to go towards a Peter Lynch strategy, by seizing all the opportunities, while for others, like Warren Buffett, it will consist in concentrating on the most solid boxes.
As always, it depends on your personal interests.
4. Hold stocks of companies paying a dividend, and reinvest these dividends.
What could be better than holding positions in solid dividend-paying companies? Reinvest those dividend payments directly into the stock market!
This will put you in the category of those who benefit from the magic of compound interest. According to Albert Einstein, this is in your best interest, because those who don't do it, pay for the others:
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”
So look to build core positions in your portfolio with dividend-paying companies that you want to keep for the long term. This is the key to success for all great investors.
5. Take the long view, don't give in to the latest fad.
Don't let your emotions get the better of you. Promising new companies that everyone is talking about frequently appear on the market. However, you should not give in to these trends that often turn out to be just fads.
Of course, in the batch, you will have great trends of tomorrow not to be missed. But it will be up to you to know how to sort out the trends that will last, and the passing trends. You will have to know how to step back and answer this crucial question:
What will be the lasting trends in the years to come?
Once you find answers to this question, you'll need to see the companies that can benefit from them. It will then be up to you to seize the opportunities that appear in the market. Patience will then be your best ally to really get into the long term.
Final Thoughts
The biggest secret of the winning investor is patience. Great success in the stock market is achieved over time. That's the thing you'll discover when you study why most people fail. All these people want to get rich too fast, so they let their emotions guide them to bad decisions.
By following the 5 tips I have just revealed, you will be able to overcome the difficult moments, which will not fail to occur, but also the moments when some give in to FOMO (Fear Of Missing Out). You'll be in it for the long haul, and you'll be able to build a solid and lasting success in the investment world.
This is your best chance to defeat the inflation that is at the root of all the ills of the current monetary and financial system.
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