When you start investing people will often say to you “only invest with money you can afford to lose” which makes sense in one way. However, to make money in the world of investment there always needs to be an edge, a risk and something to focus your mind. If you are simply investing money “you can afford to lose” how will this focus your mind?
Start small and build up
If you are looking to long-term investment as a means of providing in your later years, it is advisable to start with a fairly small investment pot and build up as your experience grows. There are no investors in the world who have literally jumped in with all of their pension fund money, made a fortune and sat back and enjoyed the life they had always dreamed of. You will make mistakes, a standard rule of investing, but if you start relatively small and learn from your mistakes you will do just fine.
Research, research and research
In the early days you would be advised to do as much research as possible into not only investment strategies but also individual companies and sectors. Try to understand how they work, what moves markets, what moves prices and the fact that sometimes stock markets do overlook individual companies. The market will eventually get it right but that does not mean there are not some hidden gems where the risk/reward ratio is maybe not as skewed as many would have you believe – there are always opportunities to make some good returns.
Courage of your convictions
There is no investor in the world that has not come across a company or sector which they believe to be undervalued by the stock market. If you dig deep enough, look at some of the obscure companies on the market you will find potential gems just waiting to happen. Something may happen tomorrow to prompt a big revaluation or maybe next month, next year or a couple of years down the line. In these instances your money may be tied up for some time with limited return and this is also something you need to take into consideration. Could you make that money work better elsewhere in the meantime? Should you invest in the hidden gem only when it starts to move?
In time you will develop a good feeling about individual companies and their potential for the future. You’ll understand what makes them tick, what happens behind the scenes and why asset strippers have made so much money in years gone by.
Don’t always follow the crowd
There are times when it is lucrative to follow the crowd but those who have made large returns over the years have tended to be a little maverick with some of their investment funds. As you build your investment pool maybe keep a little aside for more speculative investments – there is nothing wrong with a backbone of more traditional stocks. Do not become disheartened if your “hidden gems” never emerge because, by definition, investing in speculative investments means you will not always be successful but when you are the potential returns could be enormous.
Do not feel the urge to be fully invested at all of the time, as many investors do, if you have to sit on the sidelines and monitor stocks you have your eye on do not be afraid to be sitting in cash. There will be a time to jump aboard the more speculative stocks, there will be a time to sit on the sidelines but do not feel obliged to be fully invested simply because of peer pressure.
Have the courage of your investment convictions.