Investment is, simply put, a way to earn more money with your money. These days, simply saving isn’t enough and investing in the right places can bring additional value to your savings. Are you planning to invest? If you are, here are some tips from successful investors that you can consider:
Have an investment philosophy
“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.” – Warren Buffet.
Warren Buffett’s investment philosophy has always been about strong conviction. He first fully understands a business and if he considers it worthy, he goes big or goes home with the investment. Investors who are new to the investment game have tried to follow his philosophy, but they lack his acumen, eventually losing money.
It is important that you have an investment philosophy to set you on a consistent path. Those who don’t have a philosophy to set themselves straight tend to go all over the place. They target fads and trends that may be unstable and short-term only.
Loss minimisation works too
Benjamin Graham’s The Intelligent Investor: The Definitive Book on Value Investing preaches the philosophy of loss minimisation over profit maximisation as an investment strategy.
The book by Graham recommends that investors learn to develop a rational plan when investing in stocks and bonds. An ideal investment strategy is one that is shielded from emotional behaviour, which could manifest during bull and bear market times, playing it safe.
Invest in stocks
Warren Buffet told USA Today that “the nice thing about investing in stocks is that, over time, equities are going to do well.”
Buffett’s view of stocks has also been supported by CNN Money’s guide on investment basics, which pointed out how stocks “have historically outperformed all other investments.” Over the long term, stocks have returned close to 10%. Bonds, on the other hand, are the next best performing asset class according to CNN Money.
Own low-cost index funds
Buffett does not recommend that investors try to pick winning stocks. He advises investors to “own a cross sector of businesses that in aggregate are bound to do well.”
This can be done by investing in low-cost index funds. In fact, Buffett has instructed his trustees to invest 90% of the cash for his wife into a low-cost S&P index fund if he passes away.
Take the long-term view
Buffett also recommends stocks as a long-term investment, which is why he ignores the macroeconomics and political environments that could make the stock price move in the short term.
He looks at stocks as owning a piece of a business. These stocks, in his view, are like businesses which have their ups and downs (which ties back to his investment philosophy in the first point). Instead of worrying about the short-term changes in the prices of stocks, he looks at the earning potential of these “businesses” over the next five years or more.
Try to Avoid Fees
Broker fees can eat away at your investment’s returns, that’s why Buffett is a fan of low-cost index funds. Fund manager Peter Lynch and author of Learn to Earn: A Beginner’s Guide to the Basics of Investing and Business tells readers in the book about “direct investment programs” wherein investors can invest directly from the company, being able to buy more shares without paying fees and without a broker. Investors need to do their research about which company is best to invest in first before going with this strategy.
Know if the company has a solution that improves customers’ lives
The biggest question that comes to everyone before investing in a company is: “Which company should I invest in?” Successful entrepreneur and investor Richard Branson shared his advice to help you choose a company to invest in, particularly in startups.
Branson says that if he understands a start-up’s product or service at first glance, then customers will also understand it. If the product or service solves a problem, then there’s a good chance that customers will buy and engage with the product or service.
By extension, Branson’s idea can be applied to established companies, ask yourself if the company’s product or service is improving the lives of many before you invest in it. After all, if a company’s business isn’t solving a problem or improving its customers’ life – how will that hold up in the long-term?
Learning from others who have been successful in their field can provide a blueprint on how to become successful in your own way. Most new investors look up to the likes of Warren Buffett, Peter Lynch, Richard Branson, George Soros, and Benjamin Graham. These modern-day investors have spent their time and effort in investments and are an inspiration on being successful though investment.
Always do your research on the stocks available and the companies behind them before you make an investment. Make sure you understand the risks so that you can maximise profits and minimise losses.
The original version of this article was published by CompareHero.my, dedicated to increasing financial literacy and helping you save time and money by comparing credit cards, personal loans and broadband plans in Malaysia.