September 16, 2013 in 3rd Guide - Portfolio Building
Investor homework grows profits
Investor homework grows profits and pays for superior investors who use facts to avoid common investment errors and play market odds. Superior investor homework piles up facts used to select their profit producing investments.
Effective Investing & Finance Research, lesson 2 explains how investors benefit from research and doing their homework to identify investing opportunities. Links at the end guide you to related content if you want to learn more.
What’s in this lesson for me?
This introduces you to two important characteristics of superior investors, doing homework and using facts. By adopting and using these investor characteristics you can work towards achieving the investing performance of superior investors.
Fact based decisions consistently work
Only evidence or fact based decisions consistently work. Ego based or feeling based hunches do not. When we "know" we are right and the market is wrong, being stubborn and staying with foolish and expensive losing decisions can sink your returns. Avoid that sort of horribly expensive ego driven error at all costs.
Doing homework and using facts helps you also achieve superior investor performance. Adopt two important characteristics of superior investors, doing homework and using facts.
If we buy on the fly without doing our homework in advance, we invite disaster. Following the herd or acting on a hunch without researching the investment is not investing. That is gambling. Buy lottery tickets when you feel the need to gamble. When it comes to investing, make clear-headed fact based decisions.
That will not guarantee that you always win. But it substantially improves the odds and tips then in your favor.
The situation is favorable when our current homework or earlier research indicates a specific company is a buy. Then, should the price dip, we can confidently buy. If we already own the company, buying more is simply averaging down. That is not something I recommend.
Get the odds to tip in your favor
From those previous discussions we already know the odds are less favorable for our portfolio when we do so. So that situation means we simply do not buy the dip.
For a new company that we do not already own, all is different. That is because the odds are different. We watch the dip carefully and are not in a rush to get in. Always remember that we want the odds tilted in our favor.
That stops us from considering ever buying on the way down or trying to pick the bottom. Such moves tip the odds against us.
When we have the mindset to buy, it can be very tempting to be the first in at the bottom. When right or lucky, you get both the profit and bragging rights. But when wrong you lose capital and get to feel like a loser. You are. So avoid the head fakes when the price plunges lower yet. Do not move too early.
Ill timed moves destroy the favorable odds and put you underwater. Even when such a situation turns in your favor and ultimately becomes a success, you earn a fraction of what could have been made.
Be patient. Wait for the up-trend to become established. Then buy as it rises. At that point the odds have shifted to favor your investment.
Load up and enjoy the profit as the momentum carries you higher.
That approach means you always pay more than the bottom price but it also means that you are not caught by a dreaded head fake. That happens only when you are in too early. When investing we are not playing one position. We are striving for overall portfolio performance. Be patient and do what is best for your portfolio. Patience pays handsomely in investing.
Patience and homework are your two biggest investing tools. Investor homework piles up facts and profits, patience lets you wait for opportunity and enjoy the long ride to prosperity and financial security.
Why this lesson matters
The lesson matters to any investor wanting superior results. By doing homework and using facts to adopt those superior investor characteristics, any investor can work towards achieving superior investor performance.
Key take away points from lesson 2,
Investor homework grows profits:
Investor homework grows profits rewarding superior investors who do their homework and use facts. They avoid common investment errors and learn how to play market odds. Using homework generated facts, superior investors select profit producing investments.
- Superior investors do their homework.
- Superior investors use facts to make decisions.
- Superior investors look at both stocks and markets.
- Market timing must be right for the best performance.
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Effective Investing & Finance Research:
Introducing Effective Investing & Finance Research Lesson 1
Investor homework grows profit Lesson 2
Find money making stocks Lesson 3
Money making stock issues Lesson 4
Using watch list holds Lesson 5
Oprah got it right - Aristotle got it wrong Lesson 6
Investopedia finance and investing education Lesson 7
10 Point investor checklist Lesson 8
Investing confidence, taxes and learning Lesson 9
Media exposes advisor incompetence Lesson 10
5 Key finance checks Lesson 11
Next lesson 3:
Finding money making stock issues
Have a prosperous investor day!
Bryan
White Top Investor
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