This is an article meant to give stock market investment tips for seasoned investors. Yes, they’re the ones who are supposed to be giving advice, but, you’d be surprised. Even experienced investors make mistakes sometimes, and sometimes, they’re mistakes that are also made by their more inexperienced counterparts.
That said, even sophisticated investors don’t know everything, and perhaps may even profit from a friendly reminder or two. We say “reminder” because we’re sure of these things being things stock market veterans already know (but may have forgotten for the moment due to the more pressing issues of the day).
1. Make sure you invest for a good reason.
Stock market veterans as well as beginners may be tempted to sink their money into that one, big investment, but that one-time, big-time investment is almost always a bad idea.
It may also happen that you hear something great about a certain company one day, and that something makes you want to jump right in and invest in it. But before you do, stop and consider: you already have a great portfolio. So will investing in this company, however wonderful it is, fit into my mix?
Consider whether investing in this company will help you reach the goals you’ve set for your portfolio (your retirement, your children’s trust fund, whatever). Whether you end up investing in the shares of this company or not, you have to have a good reason for doing so, and not just act on impulse or emotion.
2. Be willing to “mix risk”.
It’s true all investments, without exception, come with risk, and there are several investors out there who say they are careful and would much rather avoid it. The thing is, you may be taking risks within your portfolio without being exactly aware of them.
An example of this would be being averse to investing more into one part of your investment mix in order to avoid risk, yet at the same time, having a lot of shares of just one company (for “sentimental reasons”). The level of risk you’re willing to take overall ought to match the overall goal you have for your portfolio.
3. Don’t let your feelings get in the way.
Before you, as a seasoned investor, scoff at the idea (because of course, you are above such things), it worthwhile noting that industry experts say they still see many an experienced investor let his heart rule his head.
It is well to remember that not even sophisticated investors can time the market or say for sure what will happen next. So if you can afford to, do your best to stick to your original investment schedule and strategy, whatever the market or financial news throws at you.
4. Steer clear of “behavioural investment traps”.
An example of what Morgan Stanley refers to as behavioural investment traps is when an investor is stuck on a certain price he paid for the shares of a certain company. If circumstances cause the price to change, the investor falls into the trap of thinking of what the share price “ought to be”.
“Mental accounting” is another such trap where an investor randomly categorises his funds, and makes financial decisions based on these categories. Examples of these categories might be “stocks I bought on my birthday” or “I must not sell shares from my high school friends’ companies”.
5. Don’t get advice from the grapevine.
So at a party, perhaps, you’re approached by someone, who knows someone, who in turn says so-and-so made quite a bundle investing in this up-and-coming company. It can get really tempting, even for seasoned investors, to act on their “advice”.
This is especially true if it’s someone you know well or someone you often hear talking about such successful ventures. But the fact is, nobody has a “stock market crystal ball”. Unless they’re experienced financial advisors who are familiar with your situation as well as the market’s, then their “advice” probably isn’t worth following.
6. Find out about fees.
Both the novice and experienced investor will agree that fees can really rain on your investment parade. Be sure to keep track of all the fees you might have to pay that may not be immediately apparent like transaction fees.
It’s always a good idea to make some effort to find out all of the fees you have to pay. This means taking a good, long look at your fund’s prospectus, for instance, and going through all the fine print. But if you’re still not sure, you can always ask your broker for a complete fee schedule.
7. Don’t look for the “best return of the day”.
What a good return is, is relative, really. In the US back in 2003, for instance, 5% was considered a bad return. But when banks give practically 0% in interest and treasuries can’t do significantly better, then 5% becomes a good return on your investment. Looking for higher than that becomes significantly more risky.
8. Look to history for precedents.
A good example of history repeating itself at the stock market is the property prices bust that happened in the US from 2007 to 2008. A year before that, people believed property prices would never drop. A couple of years later, these same people had given up on property prices ever rising again.
Again, it may be well to recall the maxim of selling an investment when it’s expensive and the apple of everyone’s eye (just like 2006 property shares). You also buy that same investment when it’s cheap and nobody will have anything to do with it (like property shares in 2008).
9. Make friends with trends, but don’t run with the herd.
Market trends are meant to be read, not rebelled against. Instead of buying shares of a company on its way down, invest in a company whose shares are on the up and up.
A “trend” might also be mean “what everybody else is doing”. In this sense, it actually becomes advisable to buck trends. It’s worth a friendly reminder to mention that instead of basing your financial decisions on what is popular or (un-), they should be made after carefully considering your goals, the risks involved, and how much time you have.
10. Learn to let go.
Investors, seasoned and starters alike, can find it hard to let go of losing stocks. It’s human nature to just hang on and hope that things will get better someday. But sometimes, we have to look at things in the cold, hard light of logic: the best way to avoid heavy losses at the stock market is to have an exit strategy for every investment, and stick to that strategy.
Besides, hanging on to losing shares just might cause you to end up with a portfolio-ful of underperforming stocks, with not enough gainers to balance out the mix.
11. Remember that patience is a virtue.
While we did say you ought to let go of losing stocks, there are some companies that might just be having a brief bad spell. If the company has great products or services, a solid customer base and strong assets, then it is well to be patient with them and hold on to their shares.
Patience also involves thinking for the long term. As a seasoned investor, you know that good things come to those who wait. Markets will turn into bulls, then bears, then back again, but in the long run, even everyday investors can make a profit. This is because time is a way of diversifying your portfolio, and diversification is one of the best ways to invest.
12. It’s okay to be picky.
This means choosing companies whose shares may not be the most affordable. The shares of companies that do well on the bourse may cost more than others, but they could very well be worth it. Their strong track record makes them good investments to hang on to for the long run.
13. Be open to change.
While it’s good to stick to your investment strategy, it is also good to adjust that strategy as the times demand. As your life goals, situation and income change, it is advisable to reflect on whether your investment strategy needs to be adjusted.
It might also happen that you have shares of a company with a history of great market performance, but whose technology might soon become obsolete. It’s a good idea, therefore, to add some new technology into your investment mix.
The fact is that change is the only constant in both the business world and the stock market. Your portfolio should mirror as well as adapt to the changes.
Keeping up with these changes therefore becomes indispensable to seasoned and fledgeling investors alike — and Spiking is one of the best ways to do just that. You’ll get up-to-the-minute updates on the trading activities of other sophisticated investors, who are among the more than 8,000 active in Singapore today.
You can also interact with your fellow investors and maybe provide newer investors with some guidance that they’re sure to appreciate. Start getting in on the action by downloading the Spiking app from iTunes now.