Use this checklist to become a more successful investor


We all like to think that we are good investors, but even the best investor in the world can improve on his or her success rate. All of us have our own strengths and weaknesses, so it is close to impossible to offer advice that can help everyone improve. There is also the fact that the amount of capital a person is working with will change how they approach the market. There is no one set of rules that will guarantee success, but there are ways to improve your investing strategy. Instead of trying to offer specific ideas on how to become a more successful investor, we are going to focus on a list that was created by the legendary investor John Templeton. Read the list, and see if you can spot areas of weakness in your own investing strategy.

Invest For Maximum Total Real Return

Many investors fail to recognize the impact that taxes and inflation have on their portfolio. We look at the 20% gain we made on our most recent trade, and forget to remember that we have to account for the taxes to be paid on that gain. Neglecting to account for taxes is a big mistake many investors make. Forgetting to take inflation into account is another mistake. While it is good to keep a percentage of your investments in fixed-income securities, putting too much emphasis on fixed income can hurt you in the long run. For example, if inflation is running at 4%, $100,000 today will be worth $68,000 in just ten years. That is a big drop. This means that you would need to earn more than 4% every year just to stay ahead of inflation.

Don’t Trade or Speculate… Invest

It is better to take a long-term approach to the market instead of constantly trying to get in and out of stocks for a quick buck. Investors that are constantly buying and selling stocks to make a few dollars are using the market like a casino instead of an investment vehicle. Long-term investors are patient and pay out less of their profits in commissions and capital gains taxes. Long-term investors also tend to be more informed about the stocks they hold since they pay attention to the news and the movements of the stocks there are holding over a much longer period.

Remain Flexible and Open Minded

Like everything in life, no type of investment is going to be right all the time. There are times when stocks are better than bonds, and other times when bonds and cash are better than stocks. A successful investor needs to understand the changes that happen in the market, and be able to adjust their strategies accordingly. This may seem to conflict with the rule of making long-term investments, but sticking with one strategy for too long can be just as dangerous as jumping from investment to investment. The important thing to understand is that no strategy is right for all conditions. Pay attention to the market, and be willing to change things up as needed.

Remember the Buy Low Rule

The old adage of “buy low and sell high,” seems simple enough, but it is amazing how often we trick ourselves out of following this rule. It is normal to want to buy stocks that are doing well, and sell stocks that are doing poorly, but if you always follow this strategy you will find yourself selling for a loss more often than not. Buying high is what we call “following the herd” and it happens far too often in the investment world. You have to be willing to buy stocks that are getting beaten up if you want to really make solid returns. That is not to say you should never buy strong stocks, but you have to be willing to go against the herd sometimes and pick up stocks that the rest of the market is selling. It is easy to wait until the market turns favorable, but by then the smart money has already made its move.

Look For Bargains among Quality Stocks

There are several ways to describe a quality stock. These include companies that are sales leaders in their industry, a strong management team, a well-capitalized company in a new market, or a company with strong brand recognition. These are just a few characteristics we can use to screen for quality investments. Developing a system to highlight quality stocks takes trial and error, but is something you need to start working on as soon as possible.

Buy Value, Not Market Trends

Another mistake a lot of investors make is seeing that a particular industry or sector is trending higher, and then buying as many companies inside that sector as possible. On the surface this seems to make sense, but it is important to remember that good stocks can make gains in bear markets and bad stocks can fall during bull markets. Focus on the investment, not on the market or overall economy.

Remember to Diversify in Both Stocks and Bonds

The best way to protect your hard-earned money is by spreading it out. No investment is ever 100% guaranteed to be successful, so a successful investor knows to never put all their eggs in one basket. Diversification is a key ingredient to a solid portfolio. Diversify across sectors, industries, and even countries. You cannot control the future, but by spreading out your money you can guard against any unforeseen problems that may arise with any particular investment.

Do Your Homework

Never enter make an investment until you have done your homework. Always try to investigate what makes a company successful so you can judge whether or not those conditions will continue to exist. It is also important to understand that not everyone has the necessary time, or experience to do his or her own homework. There is nothing wrong with hiring a financial advisor to give you advice on how to protect and grow your money. But once again, do some homework on whomever you hire. Anyone can claim to be a financial planner. Make sure you hire someone with a strong performance history, a lot of client recommendations and the right credentials.

Stay on Top of Your Investments

One of the biggest mistakes that investors make is to “buy and forget.” This can be especially true for long-term investors. While it is true that long term investors accept that their holdings will move up and down, there is no excuse for completely forgetting to track your holdings. At the very least, you should make it a rule to check your positions and read up on your investments on a fairly regular basis. Successful investors should maintain a relaxed approach to the market, but that is not the same thing as being complacent. Monitoring your holdings can help you understand what is happening, and what could happen in the future. Try to react before the market does, and you will come out a winner.

Don’t Panic!

A lot of money is lost when traders panic and dump stocks after a big sell off. Just because a stock takes a big hit one day you shouldn’t necessarily sell it the next day. Instead of making a snap decision, use a level head to research what is driving the stock lower. Ask yourself a basic question… if you didn’t already own the stock, would you buy it at it’s current price? If the answer is yes, then hold onto your position. If there is a very good reason why the stock is falling and it looks like it could continue to slide, then make the decision to sell, but always remain calm and research what is happening before you make a decision.

Learn From Your Mistakes

This is true with everything we do in life, but it is crucial to financial success. In addition to learning from your mistakes, try to learn from your successes as well. Keep an investment journal. Use it to write down your reasoning for each investment. Read back over it periodically to see which ideas were good ones and which ones weren’t. History has a way of repeating itself and investors who are willing to review the good and the bad moves they’ve made can turn themselves into better investors.

It’s Not Easy to Outperform the Market

If you are looking for a money manager, it is important to see how their performance compares to the overall market indices. It is very difficult to outperform the overall market for any length of time. Even professional stock pickers have a hard time beating the S&P 500 for any length of time. If a money manager can beat the S&P 500, they are doing very well. If your portfolio grows more than the S&P 500 after you pay your financial advisor, you’re doing very well indeed.

Anyone Who Has All the Answers Doesn’t Understand the Questions

The market is constantly changing. Investors who believe they have a surefire approach to investing will sooner or later learn this lesson the hard way. The market is constantly evolving and investors need to understand how those changes will impact not only our holdings, but the market as a whole. Successful investors have to be confident in their decision-making, but must also remember that there is always more to learn, and there is no strategy or system that always works.

There Is No Free Lunch

This adage is fairly straightforward… there are no shortcuts to financial success. A lot of investors like to gamble on tips from friends, only to find out that the “sure thing” was a total flop. You must always remind yourself that if something sounds too good to be true, it probably is.

Don’t Be Fearful or Negative

Anyone who invests long enough will make mistakes. There has never been an investor that has been correct 100% of the time, so don’t beat yourself up too much if and when one of your investments performs poorly. It happens. Try to learn what you can and identify anything you could have done differently. Of course, sometimes the market just turns bearish. There is nothing you can do when the entire market moves against you. Even in those cases, you should stay as positive as possible. Over the long term the market always moves higher. It always has, and it most likely always will. There will be recessions, and there will be times where you want to sell off your entire portfolio, but resist the urge. In the long run the market is going to go higher. Whether we are talking about today, or 100 years from now… the basic rule of “Buy low, sell high” will always hold true.

Michael Fowlkes

Michael Fowlkes

Michael Fowlkes is a financial writer who has been with the Fresh Brewed Media family since 2004. Over the course of his tenure with Fresh Brewed Media, he has worn many hats, including portfolio manager, options analyst, and writer. Michael received his undergraduate degree from Virginia Tech in Accounting and got his start in finance working as a stock trader for six years at Chase Investment Counsel in Charlottesville, Va.

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