Investment Basics the Key to Success

The successful investor always adheres to the investment basics. Being a profitable investor is about being disciplined and maintaining a level headed approach. Here are some of the investment basics to keep in mind:

• Know how much you are willing to lose: Before establishing a stock position, you should know how much you are willing to lose on a stock trade. If the stock investment does not perform as hoped, get out of the losing position to minimize losses. A successful equity investor is one who rides the winners and dumps the losers.

• Always do your research first: To increase your odds of making a profitable stock investment, you should do the necessary research on the company. The better informed you are, the more likely you will pick a well-managed company and avoid a poorly run one.

• Don’t fight the markets: The seasoned investor acknowledges that the markets know more than anybody does. The investor can be wrong but never the markets. After all, the stock prices reflect all that is known about the company’s fortunes. Never fight the trend but follow it.

• Diversify: Never put all your money on a few stocks. If the stock holding suffers, your portfolio could take a substantial hit. Most investment pundits recommend a stock portfolio spread over 5 industry sectors with about 15 to 20 stocks.

• Buy quality: The best-run companies tend to trade at a premium to its peers. These companies are posting operating results that are regularly beating investors’ expectations. For the investor looking for good returns, they should be in companies that are leaders in their respective industries. Under performing companies also have under performing stock prices