Five investment tips

Everyone knows some investment tips or stock market wisdoms. Many of these stock market wisdoms exist because a certain event has happened in more than 50% of the occasions in the past. An example of such a wisdom is the expression ‘Sell in May, and go away, but remember to be back in September’. Of course, this saying does not apply for all years, just think of the year 1997, when the shares did rise during the summer.

Other stock market wisdoms originates from logical thinking, when an expected outcome can be explained logically (but is not always right). But these ‘logically’ stock market wisdoms are not always applicable on the stock market, because sentiment is an important factor at the stock market.

But there are some stock market wisdoms, or investment tips, that always apply. Don’t expect miracles from these tips, but it is a shame not to learn from mistakes that others made.

#1: Don’t trust other people’s opinions, but trust the information on which they are based

Do make up your own mind and don’t fly blind on the opinions of others or on unsupported arguments. A lot of information about companies is available. With this information, your investment decisions can be supported. Of course it is tempting not to use the information that is offered through the different communication channels, and listen only to the views of so called experts. Lots of these views are based on false information or even on no information at all. This is why you should always do some fact-finding yourself and check the opinions of others. In short: support your own views with true facts and check the opinions of others.

#2: Buying shares is buying a part of a company, not just buying shares

When you buy a share, you own a part of a company. Many people don’t think of buying shares like this, but only look at the graph or historical prices. Of course sentiment is an important factor which could be read of the stock chart, but most of the price of a company is determined by business factors. These factors are the performance of the whole sector in which the company operates, the performance of the company itself and of course several financial figures. In short: don’t look solely at the price of a share, but above all at the company itself.

#3: Stay involved with your investments

As mentioned earlier, perform your own investigation at companies and support your opinion and expectations on the facts found. Write your opinion and expectations down in a way you can verify your expectations and adjust your expectations where needed. It is always easy to tell everyone, including yourself, that you expected what happened afterwards. But this way you will fool yourself. Check your expectations regularly, so you will be informed well and you stay involved with your investments. This is important, because the earlier you have important information, the earlier you can act on this information. In short: keep some kind of investment diary, in which you write down your expectations and adjust these expectations.

#4: Determine your own strategy

It is important to keep some kind of pattern in your investments. This ensures a investment policy which is more clear and a better scoping of your investments. Like successful investors and companies, you first have to think about a strategy before you act. Additionally, it is important to understand that a strategy is never finished. Every experience must be seen as a learning point, which could lead to an adjusted strategy. The strategy will be refined over time. In short: Determine your own strategy with which you feel comfortable and with which you can select your investments.

#5: Take your losses and let your profits run

Usually, a real change must occur, before a loss-making investment is reversed to a profitable investment. The other way around is also true. The chance that a profitable investment will become even more profitable is higher than that it will become loss-making. This leads to the only one golden stock market wisdom: Sell your loss-making investments and keep your profitable investments. But remember that you will have to realize your profits at some time, because a virtual profit is not yet a profit at all. You can’t spend a virtual profit. In short: Sell your loss-making investments and keep your profitable investments.

Off course a lot more stock market wisdoms exists, but the tips mentioned above will at least give you some guidance to start investing or to sharpen your investment skills.