How to invest like the best of them

No one enjoys losing money on the stock market. With the current economic times seemingly tougher than ever, the list of people, companies and phenomenon to blame for losses is a long and tempting one. Yet ultimately it is not the individual companies, or an individual product or the stock market as a whole that dictate the fate of one’s investments. It is the investor him/herself. Such is the philosophy adopted by some of the best and most prolific traders in the world today, and it is one that all investors should take on, whether they are beginners or grizzled veterans on the floor.

There are no giant trade secrets cloaked in shadows for the uninitiated. Those wanting to know how to invest wisely should simply know to invest with patience, common sense and some endurance. The trick is always to invest in what you know, not what was suggested to you by your neighbour, your advisor or your best friend. Only your knowledge and personal attachment to your investment will warn you of potential pitfalls and upswings that an asset has in store. To put it in even simpler terms, never place your money into something you do not understand. It is true that the market is an unpredictable whole, and that simply recognizing a pattern does not give you clear insight into its future directions, yet when an investor has a deep understanding of the past history of an asset, it becomes easier for him/her to track the movements the investment will make on the charts as days go.

An investor also runs the risk of placing money into a sector that represents more an idea than a practical asset. It is true that some of these innovative and bold ideas turn out to be hugely beneficial and forward-thinking ways of generating profit. Yet in the trading game, no points are assigned for spotting a money-maker before it blooms. Revenue and safety is what counts, and placing your finances into a tried and tested stream is always the wiser choice. Sooner or later, if a risky asset proves to have long term investment value, it becomes tried and tested. Leaps of faith on the stock market can quickly add up to an empty account. Wise investing and speculation do not mix.

Some stocks do however tend to go underappreciated for prolonged stretches of time. This is a result of trending, and in no way depreciates the potential of the asset. Nevertheless, patience and a thorough knowledge should always be applied. A hidden value of an otherwise overlooked stock can be tracked using some simple aspects, such as a consistent dividend history, low price and earnings multiples and inherent book values of the company fielding the product. The long term potential of the firm you are investing in is by far a more treasured factor than the value of the product itself. Like the saying goes, it is much wiser to invest into a great venture at only a fair price, rather than a fair venture at a great price.

An experienced trader who knows his asset inside and out can make an investment and generate profit without daily tracking of the stock market. It is a matter of knowing your product and your goals. During these tough economic times especially, it seems that panicked hourly analyses of market trends and economics has become the gauge for proper investment strategies. Yet that tactic reveals more about investor psychology than it does of their portfolio’s standings over a long stretch of time. At the very end of all speculation, a product will behave as its history and its current environment will dictate, and the thrashings that the market undergoes on a minute to minute basis during recession-like periods will only serve to drive an investor insane. No matter how profitable an investment, if it disallows you to sleep at night, then sell if only for the profit of peace of mind.

An understanding of what constitutes taking a risk and being a risk-taker is also crucial. Investing carries inherent uncertainties; however, it should never become a gambling game. A certain margin of safety should always be present, and all speculation reduced to a minimum. This is after all a business venture you are placing your hard-earned money into, therefore, a business-like approach is most appropriate. Investing is not a card game and should never be treated as such.

And like all business procedures, emotions should be left at the door. Simply know what you are buying, how much of it you are buying, and most importantly, why you are buying it in the first place. Similarly, know when to sell what you are buying. Having a well-rooted selling policy is also key, as an investment that collects dust and nominal profits over the course of years is a worthless one. A wise investor should always have a pre-established ceiling for prices, profits, losses and holding periods as the asset travels through the charts. Knowing when to walk away from a winning product is just as vital as walking away from a losing one.

Finally, the most important facet of investing wisely is not so much managing your investment, but rather managing yourself.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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