Investing in the stock market doesn't have to be hard.
So we put together 5 simple rules every investor must know when it comes to investing in the stock market.
Control Your Emotions
Success in investing often doesn't rely solely on intelligence, but also on emotional control. It can be easy to get caught up with the latest headlines and lose sight of the real reason why you should be investing in the first place:
Investing in stocks is about owning a portion of a business.
And if you're going to own a business, you want it to be a great business that you're confident about during tough times.
Many investors let their guts, not their head, drive their investing decisions. In fact, trading too often based on emotions is the most common way investors can hurt their overall returns.
So how can you stay confident about your investments even if they move against you?
Buy Great Companies
Sometimes it can be easy to forget that every stock quote crawling across the ticker on Synvestable represents an actual business. Don’t allow stock picking to become anything more than buying a portion of a business.
You'll be exposed to a plethora of information from the markets, both positive and negative, however very little of it should affect your long-term thinking when it comes to your investments.
It becomes much easier to focus on what matters when you keep the mentality of being a part-owner of a business. Understanding how a company operates, it's place relative to its competitors, competitive advantages, governance, it's long-term potential, and how it fits into your overall portfolio are key things to consider.
And when you do see some negative information pertaining to one of your investments, ask yourself:
Has the underlying business changed at all?
Be Prepared For Market Mania
It can be very easy to want to cycle through stock holdings for quick gains and even worse, panic in the event of a selloff. But making in-the-moment decisions can lead to the the anti-thesis of investing: buying high and selling low.
This is where keeping a trade journal can help.
Write down why you're purchasing each stock. Below are some things you'll want to include.
Reasons For Buying: Spell out what you find attractive about the company and the opportunity you see for the future. What are your expectations? What advantages does the company have over it's competitors? Are the financials sturdy? Are profits growing? Is there sufficient cash on hand with reasonable debt levels?
Price Target: Be sure to include what you think the stock is intrinsically worth. This may be dependent upon your individual time horizon. What is your desired return for each position? Setting price targets that are supported by things like a stock's fair value can help you determine the right exit point for you personally.
When you do have a price target, you can set them in your Synvestable portfolio. This helps take your emotions out of the market completely, and helps you stick to your original investment thesis
Time—and not timing—is a retail investor's advantage. The best investors buy companies because they expect to eventually be rewarded — whether by capital gains, dividends, etc. — over years or sometimes decades. That means you can take your time when initiating new positions.
Make Investing A Habit
Below are two buying strategies that reduce your exposure to price volatility:
Dollar-cost average: this means investing a set amount of money at regular intervals, such as once per week or month. As prices move, this systematic approach takes advantage of "averaging down" on your overall cost per share, and takes your emotion out of the market by sticking to a purchasing regimen.
Buy in thirds: Similar to dollar-cost averaging, “buying in thirds” helps you pace your purchasing speed. Divide the total amount you want to invest by 3 and then pick three separate price points to purchase shares. You can do this with Synvestable by creating three different portfolios and setting low-price targets on each position. Synvestable will text you when the low-targets are reached so you can make your 1st, 2nd, and 3rd purchase.
Check in on your portfolio positions at least once per month. Use Synvestable portfolio tools to see if any insights have changed (things like high position concentrations, low-volume, diversification, etc.).
Check to see if your overall portfolio volatility has changed and if your overall portfolio style (value, balanced, or growth) still applies. If things have changed, you can adjust positions, or auto-rebalance to remain properly diversified.
If you see a sharp price movement in some positions, check out the latest news and prediction for that company.
Does the movement pertain to the fundamental story of the business? If not, it may be a good selling opportunity in the event of a price spike, and a good buying opportunity in the event of a price dip.
Rarely is short-term news going to affect a business's long-term prospects. It's how you react to the news that matters most. This is where setting price targets, keeping a trade journal, and remaining disciplined to your original investment thesis matters most.
And for some great investing ideas and to dive into some great companies, check out what's going on in the market today at synvestable.com.