Tip 4: Know What You Own
Only invest in businesses you understand…
Coca-Cola (KO) makes a good example. Coca-Cola is an extremely easy business to understand. That hot new biotech start-up, not as much.
When you know the business plan of a particular stock you own, you will have confidence not to sell it during bear markets. If Coca-Cola share price dips 10%, you can have confidence knowing that sodas (and juices, and waters.) are still going to be sold regardless of what the stock price does.
“The worst thing you can do is invest in companies you know nothing about. Unfortunately, buying stocks on ignorance is still a popular American pastime.”
– Peter Lynch
Tip 5: Don’t Sell Because of Small Gains
No one ever went broke taking a profit…
While this is true, it is also true that it is much harder to get wealthy by taking small profits.
Invest in businesses that you believe will double, triple, or more over several decades.
A business does not have to be growing quickly to multiply your money over several decades. Businesses that repurchase shares, pay dividends, and make efficiency gains will not have to expand much at all to create serious shareholder gains.
“I had made what I believe was one of the more valuable decisions of my business life. This was to confine all efforts solely to making major gains in the long-run.”
– Philip Fisher
Tip 6: Overreaction is Harmful to Your Wealth
The world is constantly changing.
One day, European Union central banks adopt negative interest rates…
Another day, a war will break out or the US will impose economic sanctions on a country.
In less macro news, a business may report quarterly earnings 5% below analyst expectations, or a patent will expire.
All of these things don’t matter very much to long-term investors. What matters is that the businesses you hold still have a strong competitive advantage.
If they do, there is no reason to sell based on temporary uncertainty.
“In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”
– Warren Buffett
Want even more tips? Take a look at these 10 long-term investing tips.
Final Thoughts
The amazing success records of investors who believe a long-term outlook is critical for favorable investment returns lends credibility to the idea of long-term investing.
When you approach stock purchases as if you were never going to sell, it forces you to be very selective in which businesses you will invest. Long-Term investing puts the spotlight on what really matters – the long-term prospects and competitive advantage of the business.
The financial media does not typically discuss the merits of long-term investing because it does not generate fees for the financial industry. Long-term investing does not lend itself to flashy headlines or catchy sound bites.
I personally invest in high quality dividend growth stocks for the long-run.
I believe that high quality dividend growths stocks with strong competitive advantages offer individual investors the best available mix of current income, growth, and stability.
Long-term investing requires conviction, perseverance, and the ability to do nothing when others are being very active with their portfolios.
Do you have what it takes to invest for the long run?
Disclosure: None
