When aspiring investors look at the greats such as John Neff, Thomas Rowe Price Jr, and Warren Buffet, they cannot help but wonder how these investors made it to investment and history books. Starting an investment journey is not easy, let alone keeping at it and climbing to the top. However, with advice from people who have been there, done that, and are still doing it, you can also get to the helm. Let’s look at how successful investors have built their stock portfolios from scratch and how you, too, can grow your wealth!
Going into the stock market without prior knowledge of how it works will work against you. You will find many people willing to offer you advice, some of it good, a lot of it half-baked and often wrong. As such, you need to understand how the market works. Successful investors start at the basics, amassing knowledge even before they buy their first stock. It makes it easier to spot opportunities and avoid people who are out to cheat them.
They Plan for the Long Term
As the saying goes, failing to plan is planning to fail. Without understanding where you’re going, it’s hard to develop a strategy on how to get there. It’s like going to the bus stop, and all you know is that you need to get somewhere and don’t know where. Which bus will you take? You can end up anywhere with this inadequate planning.
A successful investor will look at investing like a marathon rather than a sprint. Take an example of an investor who invested in Amazon back on 12th June 1998 when a share was available for $10.17. By 3rd September 1999, the share price had risen to $62.44 before dropping to $28.94 by 24th November 2000. The share price only started gaining momentum again in 2007, and by 4th May 2007, it had risen to $63.23. After this, the share price peaked and has been growing, amid some pitfalls, to the $3,137.53 share price on 13th May 2021. If an investor had opted out in 2000, they would have lost out on the massive gains over the last two decades. Instead of focusing on the index, follow the business. Is it worthwhile? Does its product or service line have room for growth? Do you trust the company’s management?
Amazon is just one example of a long-term investment opportunity. There are many more companies you can find at StockInvest.us to help you gauge what will work for you in the long term. And then, you can initiate your plan.
They Buy Businesses
It’s easy to focus on indices and forget that these come with the companies behind them. Let’s use Apple as an example, and let’s see how it holds up as a business. First, it has a competent management team; check! That’s a team you can count on to stick to timelines and develop strategies that take the business to the next level. Apple is always reinventing the wheel and staying ahead of the curve.
Secondly, it relies on a range of products and services, check! From accessories to phones to cloud storage, this company has several income streams and keeps coming up with more. It is thus more stable than a company that only relies on a few or one revenue stream.
Thirdly, it offers unique products and services, enabling it to sell these at high prices. By offering a brand, it’s easy to understand why people are always quick to grab the latest iPhone.
Its stock price is proof that this is a business and not just a number on the index scale. This company has grown in leaps and yards from a share price of $25.78 on 9th September 2016 to $124.39 on 13th May 2021. Can you think of a company that offers these three assurances? If yes, you may have found the investment opportunity for you!
People often throw the term diversification around, but what does it mean? Simply, it means spreading your risk to enable you to enjoy returns even when one or more of your stocks does not perform as expected. Take the example of Genworth Financial. Before 2008, the company was performing great and had even hit a peak of $35.96 on 15th June 2007. However, in 2008, it suffered a massive crash and hit a low of $0.84 by 6th March 2009. As much as the stocks rose again to $18.22 by 9th May 2014, the company has never fully recovered and has further declined since the crash. By 13th May 2021, the share price was at $3.78, a far cry from what it used to be.
Now, put yourself in the shoes of an investor in this company, having put all your eggs in one basket. You would have suffered a major loss from which you would not recover. That’s why investors diversify! Aim to have at least ten stocks spread across different sectors to avoid suffering a downturn when one sector falls drastically.
Finally, successful investors are picky with their investments and spend a great deal of time sorting the wheat from the chaff. They make rational decisions, understand their motivations, and use this as a guide when approaching any stock. You, too, have what it takes to excel in stock investing.