This is an influencer post by Steven Yamshon, Chief Investment Officer, Stevens First Principles Investment Advisors (SFP)
Yesterday, I attended a luncheon and a meeting that allowed me to have one of the most interesting and educational days I have had this year. It was a lesson in human psychology that, in my opinion, prevents investors from being successful. I was invited to a luncheon at a very nice restaurant with a group of about 15 people. All of them were educated, and most of them have a lot of experience in finance and accounting. What do you think the main topic among everyone around the table at lunch was? Of course, it was about the stock market. Many of them were checking their IPhones to see the latest carnage in the stock market averages. They were acting like a downturn of approximately 300 points couldn’t happen. Most wanted their bosses to sell the stocks in their pension plan. Thank Goodness that 1 o’ clock came quickly so all of the stock market chatters could come to an end, and we could talk about something important like Kim Kardashian or Taylor Swift. I casually reminded them that one day’s result in the stock market means nothing. It is the long term that matters. Benjamin Graham once said that “in the short run, the stock market is a voting machine, and in the long run, it is weighing machine.” I think that holds true today.
Later in the day, I was invited to meet a prospective client’s home to look at his portfolio, which had a lot of losses. When I dived deep into the brokerage statements, I found that this particular account had a lot of activity so I decided to count how many transactions occurred during 2013. I counted over 400 trades. I also noticed that the mutual funds were of the class that had the highest load charge and the account was full of esoteric structured notes and annuities.
Wow, what an experience. Yesterday was a day that made me realize why many people don’t make money in the stock market. Here are five tips to help you be a better and more importantly, a profitable investor.
Tip #1- Stick to a common sense investment plan. Avoid securities that you don’t understand. If the security is complicated, then chances are it is a poor investment. Warren Buffett stated that if it takes higher mathematics to figure out an investment, it is usually the wrong one to invest in. Avoid securities like annuities where the salespeople and insurance companies make more money than you do. Numerous studies and ample data have demonstrated that over time, the stock market produces the best returns. If you don’t believe me, check out Ibbotson’s “Classic Yearbook”, which is chocked full of historical return data.
Tip #2– Invest for the long haul and don’t worry about the day-to-day fluctuations. Market timing, day trading, and guessing every zig-zag is a loser’s game. It is impossible to accurately predict the direction of markets with one exception. As long as the U.S. stays productive, then the long-term direction of the market will be up. Even the famed short-term trader, Jesse Livermore, said that he made most of his money in holding stocks for long periods of time. I know I have. Watching every movement of the market throughout the day is noise. You should learn to avoid the noise and base your decisions on real data. One day’s market result doesn’t mean anything in the long-term scope of things.
Tip #3- Stick to good value. Buy securities when they provide good value, thereby increasing the chances of getting a good return. You don’t overpay for items in a store nor when you buy a car, do you? Then don’t overpay for stocks. Carefully check out dividend yields and price to earnings ratios to see if they are in line historically. If the P/E ratio is much higher than the historical average or the market averages, simply walk away. Remember, there is a bus every ten minutes.
Tip#4- Don’t fall in love with your stocks. Stocks are investments, and they need to be evaluated using good judgment and business sense. Stocks that do not meet this criterion are not suitable for investment.
Tip # 5- Don’t listen to rumors or wild opinions. Read constantly and be a better informed investor. Learn to determine if a person’s opinion is factual or a wild speculation. Develop mastery in basic investing by reading books such as Benjamin Graham’s Intelligent Investor. Most importantly is to think for yourself.
Disclaimer: This is an Influencer post. The statements, opinions and data contained in these publications are solely those of the individual authors and contributors and not of iamwire and the editor(s). This article was initially published here