Successful Long-Term Investing Requires "Intestinal Fortitude"
In an article on MSN Money, Guru investor, John Reese talks about some reasons why investors tend to fail in the current market scenario.
Reese began his investment research firm based on the hyposthesis that investors could learn from legendary investors like Warren Buffet, Peter Lynch, and Ben Graham.
First of all chasing stocks that perform well may not be the best investment strategy since most people tend to buy when the stock has peaked. Rather, try to ask some questions as to why this particular stock is doing well or what other stocks in the industry are following suit.
Next, aiming to move money in and out on short term moves is really defeating the purpose of investing, Reese says, because such predictions on short-term movements are next to impossible. The key is to aim to stay lean during the difficult times so that one can come out ahead long-term.
Another point to remember is to keep our biases and emotions out of the investing game. Fear and greed are inevitable elements of the stock play, but they don't have to override your common sense.
In the words of the immortal billionaire-investor and philanthropist Warren Buffet, "Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ. … What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."
If you find yourself getting overwhelmed with your investing, the first thing is to be aware of it and to try to get a hold of it. The process can be further diluted by following a protocol or system that will keep you from making decisions based on your emotions - i.e. the fundamentals of a company should point to where the stock is heading.
Another factor that you need to keep in mind is that short-term bets are always risky. But the longer the stock is held, the less risk involved.
In times of volatility, make sure your holdings are properly diversified - and that includes equities as well as asset allocation.
Another imperative in prevailing in investing is not to get too bogged down with day-to-day chages in stock movements. Having the patience and discipline to stick to your strategy will almost certainly get you out of the rut, even while stocks are underperforming.
James O'Shaughnessy was quoted as saying by MSN Money, "Finding exploitable investment opportunities … requires the ability to consistently, patiently, and slavishly stick with a strategy, even when it's performing poorly relative to other methods. … Disciplined implementation of active strategies is the key to performance."
And lastly, if you don't believe in the stocks you're picking, chances are that they may not be the tenbaggers that you'll be reaping your money from.
Peter Lynch says it all when he says its the stomach that plays a decisive role in market decisions and not the brain. One needs to have the intestinal fortitude to overcome market angst for long-term investing success, writes Reese.
Tags: Business , Personal Finance , Stock Markets , Investing
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