While many people speculate what makes a good investor the fact is that we are all very different, we have strengths and weaknesses, and we need to appreciate this. You should never invest in markets in which you have limited knowledge or limited interest because it will be almost impossible for you to read the market correctly. However, there is a much simpler way to maximise your investment returns which is quite simply, do not let your heart rule your head when investing
We all have our favourite stocks
Whether we admit it or not we all have our favourite stocks, favourite sectors and companies we like to trade. Many investors will focus on a limited number of volatile companies, get to know them very well and be able to read share price movements to their benefit. However, sometimes it is possible to get too close to a company and become detached from the cold hard decisions you need to make.
Treat shares like empty boxes
If you treat shares, or any other type of investment, as an “empty box”, which you are simply buying and selling, this will allow you to become detached from the situation. In order to maximise your returns you need to have a cold hard streak whereby you simply dump shares which have limited appeal and stick with your winners. It is easier said than done but once you master the ability to distance yourself from an individual investment and see it simply as a means to an end you will begin to bank some decent profits.
Would you buy a share today?
Even though you should constantly monitor your investments you do not necessarily need to make regular changes. One simple strategy which many investors use is to look at assets in their portfolio on a regular basis and ask the question, would I buy that investment today. In order for this particular strategy to work you need to be honest, whether you would buy, sell or hold will impact your next move.
This sounds like a very simple, indeed too simple, an investment strategy but once you try it you will understand how it works. It should prompt you to review the short, medium and long-term prospects of individual investments in your portfolio and ask yourself whether you would indeed still buy them today. If the situation has changed and the shares are less attractive than when you bought them, you may decide to sell or perhaps reconsider at the next review. If this strategy prompts you to think about the “perceived value” of an investment today, and the potential, that is just perfect.
Take emotion out of the game
Human beings are by definition emotional characters and you only need to look at share prices on the stock market to see overreactions on good news, bad news and indifferent news. Those who have more chance of a long-term career in investment are those who are able to look at individual assets in the cold light of day with no emotional baggage. It sounds very simple, in theory it is very simple, but it does take a little getting used to because let’s face it we all have our favourites!