365 Daily Investing Tips
A few years ago, we put together a project that was a daily investing tip. We created 365 different investing tips - some very specific to investing, while others were more general, even getting a bit into savings and even insurance.
We've consolidated all the daily investing tip into this one massive guide, so that you can get the best of the tips all in one place.
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1. Start Investing Early
The sooner you start investing the better. By investing early, you allow your investments more time to grow. Money has time value. Money earns and grows with time. Money grows with the power of compounding. Don’t waste your time and start investing today. Remember, the best time to plant a tree was 20 years ago. The second-best time to plant a tree is today!
2. Invest For The Long Term
Investing is designed to be a long-term endeavor. If you want to trade, you hold for the short term. If you want to invest, you do it for the long term. Holding period for a stock may be forever. Warren Buffett is famous for saying, “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for 10 years.” By this, he’s saying that he wants to buy good, solid investments that will pay off over the long run. Ignore short-term fluctuations. Patience is the key to investments. When Buffet buys a stock, he buys it with the view of holding it for life. When you invest in the stock market, think for long term and not quick gain through trading.
3. Invest In High Quality Growth Companies
There are two main investment styles: value and growth. Being a growth investor focuses on companies that are poised to grow over time. One of the most famous growth companies in history is Apple. Others include Google and Amazon. These are companies that have grown over time. The trick for investors is to find these companies when they are still infants. Pick up the companies with that offer strong brand names with competitive advantages. Many of the most successful growth companies are ones that redefine industries or create new ones altogether. Remember though, growth companies carry risk, so be warned.
4. Diversify, But Not Too Much
It is essential that you diversify your portfolio – it’s one of the best ways to ensure that your portfolio grows on pace with the market over time. You should diversify in different assets classes. Diversify but don’t over diversify in same asset class, which usually cancels out all potential gains.
A good example is owning a stock like Apple, but then owning the NASDAQ 100 index. Apple makes up a large part of that index fund, so you’re not really diversified (plus, the NASDAQ is mostly tech, like Apple). Invest in different assets classes such as stocks, bonds, mutual funds, bank deposits, gold, forex, real estate and other instruments. And, even within an asset class, say stocks, go for good quality companies. Philip Fisher says “I don’t want a lot of good investments; I want a few outstanding ones.”
5. Keep An Eye On Value
Growth investing is fun, but value investing is where many of the most successful investors made their money. Focus on value investing in companies that have sound fundamentals. Look for the companies that are worth more than their market value, invest in them and hold the investment for long term.
Benjamin Graham, known as father of Value Investing (and the mentor of Warren Buffett) and one of the 10 best investors of all time, says over the long-run, performance of both the company and its share price generally matches. So, take advantage of short-term fluctuations or bad news, and use that to profit over the long run.
6. Investing Is NOT Gambling
One of the biggest mistakes that outsides make is thinking that all investing is gambling or speculation. Nope – it isn’t. But not so savvy investors can treat it like such and will fail. Avoid making investment decision based on short-term market movements’ predictions, rumors, and gossip. Fisher, a great investor, warns buying a company without having sufficient knowledge of it may be dangerous. You need to do your homework. You need to think about every investment you make as you personally investing as an owner of the company. Would you buy the company if it was a local shop? Think of it that way and invest, don’t gamble.
7. Don't Follow The Pack
One of my favorite Warren Buffett quotes is, “Be fearful when others are greedy and greedy when others are fearful.” It’s one of the mantras I live by and it has helped me be very successful while investing – I bought some of my biggest winners during the peak of the 2007 financial crisis.
The goal should be to buy when others are pessimistically selling and sell when others are greedily buying. In the wonderland of investment, courage is the supreme virtue backed by adequate knowledge and sound judgment. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell. It can be hard to do, but put your emotions aside and do your research.
8. Don't Borrow Money To Invest
If you want to invest in the stock market, you need to do it with your own money – don’t borrow money from others to do it. Or, don’t borrow money from yourself to do it either (like using a credit card). Avoid any instrument over-geared to make money. Don’t invest in market using borrowed money, especially if you are a new investor. Any adverse market fluctuations may force you to sell your position and you could owe a lot of money. Simply get started investing from your savings – that’s it!
9. Invest In Companies, Not Stocks
Whenever you invest in shares of a company, think that you are buying a business, not a stock. Graham and Warren Buffet, two great investors, emphasize that there is no difference between buying a business and shares in a business. When you buy a share of a company, you become an owner.
However, you’re a silent owner. So, you need to make sure that you’re comfortable with what the business does, how it operates, how it makes money, and understand how the management makes decisions. So, keep in mind that below every share of stock is a company that should be making money!
10. Keep Some Of Your Portfolio Defensive
The best sports teams excel at both offense and defense. Your portfolio is no different. If you want to be successful, you need to be able to find winners, but also protect yourself from huge losses. The key is to add some defensive shares that are comparatively immune to recessions and economic slowdowns. Look for a company which fulfills basic needs, such as food and health. The consumer demand for their products or services is likely to remain intact even during difficult economic times. Investment in defensive stocks is considered relatively secure, less volatile and gives steady returns over long run. Plus, many pay dividends!
11. Invest In Companies That Consistently Buy Back Their Own Shares
One piece of criteria you can look at when choosing stocks is for companies that consistently buy back their own shares. This is a good sign. Many good companies reward their shareholders through share buybacks besides regular dividend. As it reduces number of shares and enhances earning per share, the buyback has a positive effect. Companies that buy back their own shares have proved to be good stocks to buy. When thinking of investing for the long term know that company buybacks is a good thing!
12. Accept Your Investing Mistakes
You’re only human. All of your investing choices are not going to be 100 percent right, all of the time. All of your purchase decisions will not be always right – that’s a fact. But it’s always hard to admit that your purchase was wrong. Don’t allow your emotion to stop you selling such shares to avoid further loss. Don’t wait the market to revisit your purchase price. William J. O’Neil, founder of the Investor’s Business Daily, advises to cut your losses at 8% below the purchase price. Be willing to accept your investing mistakes. Doing this will save you a lot of money in the long run!
13. Buy Leading Stocks, Not Laggards
A leading stock will outperform or at least keep up with the market. A laggard will underperform. Look for high-growth companies that stand out among their peers in an industry or the whole market. A leader is not necessarily the biggest company in its market. Compare their financials, profit estimates and long-term growth. William J. O’Neil, founder of the Investor’s Business Daily, advises to buy market leaders, not laggards. Do plenty of research before picking a stock. And remember, bigger companies are not always better. Buy leading stocks.
14. Stick With Market Leaders
In #13, we talked about the importance of choosing market leaders over laggards. What we didn’t talk about was pruning poor stock picks from your portfolio. Review your portfolio periodically, say once in a year or two, and prune nonperforming assets. Continue to hold market leaders. Don’t get emotionally attached with your shares. Keep Leaders, Not Laggards in your portfolio. If you want a winning portfolio don’t underestimate the value of reviewing your investments and eliminating your poor assets.
15. Buy Shares In Cash Rich Companies
When you’re choosing investments it’s crucial that you look at a company’s financials. One indicator of a healthy company is high cash reserves. Invest in companies with good cash reserves. A company with a strong cash positions generally reward its shareholders with high dividends, bonus shares and buyback of shares. Shares of cash-rich companies face less downside risk. Evaluate a company’s financial stance before investing.
16. Prefer Debt Free Companies
Debt free companies usually make sound investments. Companies that have no debt cannot go bankrupt. Look for debt free or below-average debt-to-equity ratios. Avoid highly over-geared; a company with low equity and high debt. During bad times such companies may face difficulties in servicing debts. Market rewards companies with little or no debt while punishing those who piled up large debt on their books. Before you purchase a company’s, stock be sure to check their ratios.
17. Look For High Profit Margin Stocks
Successful businesses make money. And one way to tell if a company is going to make money is by looking at their profit margin. A company that consistently delivers high profit margins is a good buy. A higher profit margin indicates the company is more efficiently run with lower operating costs and higher revenues. The company’s good performance and high profitability are expected to yield higher growth. When choosing investments look for high profit margin stocks.
18. Invest In Dividend Paying Stocks
Many investors concentrate on building up dividend portfolios and there’s a good reason why. The companies that consistently pay high dividends are a good option for investment, as they provide you a steady amount of income, and also have the potential for growth. Even if the share price doesn’t go up every year, you still make money by way of dividend. Use high dividend yield, percentage of dividend compared to its price, to pick up shares. Diversify your portfolio by adding some high dividend paying stocks.
19. Look For Less Volatile Stocks
If you’re not very risk averse you need to stay away from volatile stocks. The price of volatile shares moves more extreme ups and downs compared to overall movements in the share market as a whole. The price volatility of a share is measured by Beta. The shares with Beta more than one are considered risky. If the market takes a dive, these stocks can fall more steeply. Keep in mind that when investing for the long term slow and steady wins the race.
20. Look For Stocks With High Alpha
Understanding different metrics when it comes to stocks is going to help you choose the winners. Alpha tells you how a stock’s return is actually doing compared to a market benchmark, such as the S&P 500. You can earn above-average returns if you buy stocks with a high alpha. The stocks with high Alpha give higher return than the benchmark return. Pay attention to a stock’s Alpha the next time you’re buying shares.
21. Invest In Stocks Trading Below Net Cash Value
One way to find a good stock is to find one that is trading below net cash value. Sometimes you can find a company’s market capitalization may be less than the cash it holds. Its stock is trading below its net cash value. It is like buying higher cash value by paying less cash. It is Graham’s favorite strategy known as the “Net-Net” approach. Though difficult to find in the present market, these stocks may be available during the depression or economy slowdown. Look for stocks with this metric during the next slowdown.
22. Invest In Growth Companies For Long Term Gains
It’s smart to look at growth when investing for the long term. Look for the companies with consistent growth in sales and earnings, profit margin and rate of return on equity. Look at their trend for last 3 to 5 years or more. Phillip Fisher achieved an excellent record of money management by investing in well-managed, high-quality growth companies, which he held for the long term. Growth companies can make a nice addition to your portfolio.
23. Look Beyond A Companies Financials
Before buying stock it’s wise to do as much research as possible. It is always desirable to look at the company’s balance sheet and financial statements. But go beyond these and search far and wide for information on a company. Look at the opinion of its stakeholders such as customers, suppliers, employees and competitors. This is Fisher’s scuttlebutt strategy for investing. You want to invest in companies that are going to stay strong for the long run. You’d be surprised what you can find out by simply seeking the opinions of others.
24. Avoid Industries With A Low Profit Margin
A company’s profit margin can reveal a lot. Industries or sectors which are very competitive are not usually good long-term investments. The companies face cut- throat competition and have to run on a low profit margins. They carry risks of even less profit or making loss if demand of the commodity or service goes down. Be wary of investing in companies in super competitive industries. If a company has low profit margins, it can be tough to be rewarded as a shareholder.
25. Control Temptations To Book Profits On Every Rally
It can be very tempting to sell off your good shares for profit. But this isn’t always a good idea. Hold your shares and allow them to grow. However, if you need to take some money out of market periodically for a use such as college admission fee, sell just a few shares when the price is 25% to 30 % up and keep the amount in bank. But don’t sell your best performing shares. If you can fight off the temptation to sell your best shares you’ll be rewarded in the long run.
26. Limit Investments In Gold To 3% to 5%
There’s a lot of hype around investing in Gold. But should you listen? Investments in Gold are used as a hedge against inflation and currency devaluation, and as a safe haven against any economic crises. Investments in Gold gives a good return in the long run. The Gold market is highly liquid and you can sell whenever you need the cash. Gold is an effective tool for diversifying one’s portfolio. But limit investments in Gold to 3 to 5% of your portfolio.
27. Invest In Gold ETFs
Investments in Gold ETFs provides returns matching direct investments in gold, without the hassles of taking physical delivery of Gold. You can purchase Gold ETFs through ETF Mutual Funds. The Gold ETF is traded in Stock Exchanges just like shares. It is a unique way of accumulating Gold for future needs. You can sell it in cash and convert into physical gold. If you want to invest in Gold without holding onto its Gold ETFs are a perfect fit.
28. Get Real Interest Through Treasury Inflation Protected Securities (TIPS)
Treasury inflation-protected securities (TIPS) can be a good addition to your investment portfolio – especially if you’re a conservative investor. The investment is risk free and beats inflation over the long-term. Maturity value and interest rates are linked to Consumer Price Index (CPI). The interest payments and the bond’s face value are protected against inflation. Thus, you get a real rate of return guaranteed by the government.
29. Invest Through SIP (Systematic Investment Plan)
To stay on track with your investment goals you need to continually add money to your investments. An easy way to do this is investing through a SIP. SIP is similar to a Recurring Deposit. You can put small amounts in SIP (Systematic Investment Plan) every month. On a specified date the amount will get invested in mutual fund schemes or shares of your choice. Investment through SIP is a unique way of accumulating shares without waiting for market timings. A SIP is a disciplined approach towards savings and investments. This helps you inculcate the habit of saving and building wealth for the future.
30. Invest In ETFs
You can invest in a basket of securities through an ETF. It closely tracks the performance of an index, a commodity or a basket of assets. ETFs are traded at exchange just like a stock and provide returns that closely correspond to the total return of the securities included in their baskets. ETFs are available for all leading market index across the world such as S&P, NASDAQ, and FTSE. ETFs can be a great way to diversify your investments.
31. Include Fixed Income Securities in Your Portfolio
If you’re a conservative investor or are saving for a short term purchase you might want to include fixed income securities in your portfolio. Fixed-income securities such as bonds or, fixed deposits pay you a fixed rate of return. The interest on these may be paid periodically. As they provide an assured return on due dates as per schedule, you can plan your cash inflows for meeting some regular expenses like school fees.
32. Adopt Dollar Cost Averaging
You may desire to buy shares at its low and sell it at its high, but this is hard to achieve. The Dollar Cost Averaging Plan involves investment of a fixed dollar amount at a fixed interval. This could be weekly or monthly for purchasing specific shares, irrespective of the stock price. Your money then fetches a greater number of shares when the price is low and lesser when the price is high. Dollar Cost Averaging Plan allows you to accumulate shares at a lower average cost per share.
33. Invest In What You Know
Buy stocks in businesses that you understand. You should be familiar with the sector and the company. Phillip Fisher, a great investor, tells us buying a company without having sufficient knowledge of it may be dangerous. Do some homework and research before investing. As a rule of thumb don’t invest in the unknown. Educate yourself on all of your investments.
34. Learn From Each Mistake
Nobody gets stock picking right 100% of the time! As a new investor, you may make some mistakes. Do not get discouraged. Even great investors make wrong decisions sometimes! Analyze what went wrong and learn how to avoid them in future. The best model for success is to learn from your failures.
35. Buy Blue Chip Stocks
Blue chips companies are fundamentally strong companies with a track record of performance, earnings and reputation. Typically, these are large companies that have been in business for many years and are considered to be very stable. These are well known shares generally included in market index such as S&P, NASDAQ, and FTSE. Investment in Blue Chip Shares is considered relatively secure, less volatile and gives steady returns over long run. If you’re investing for the long-term blue-chip shares are the way to go.
36. Read Philip Fischer’s Book Common Stocks and Uncommon Profits
By studying great investors, you can avoid many mistakes. Phillip Fisher, one of the most influential investors of all time, has recorded his investment philosophies in his book Common Stocks and Uncommon Profits. They are widely studied and applied by investment professionals. Look for 15 factors mentioned in Fisher’s book “Common Stocks and Uncommon Profits” when buying common stock.
37. Set Investing Rules For Yourself
It can be easy to invest on impulse, especially for new investors. That’s why you need to frame your buy and sell rules before you buy. Don’t make impulsive decisions. Control your emotional behavior in the market. Benjamin Graham, the investment guru, tells “Adopt simple rules and stick to them.” When you stick to your own rules you’ll me far more likely to see a positive outcome.
38. Diversify Your Portfolio With Just Two or Three Funds
Diversity of your portfolio with limited good quality companies is desirable, but first you need time to understand the companies. Fisher, a great investor, warns buying a company without having sufficient knowledge of it may be dangerous. If you don’t have sufficient time to devote to such studies, diversify your portfolio with just three good quality mutual funds. You can achieve the same objective.
This is also the approach that the Bogleheads' advocate.
39. Use The Rule Of 72
You’ve probably wondered “How long will it take to double my investment at a given rate of return?” The Thumb rule of 72 comes in handy here. Just divide 72 by the interest rate and you have the number of years it takes to double your money, roughly. For example, if the interest rate is 6%, your money doubles in about 12 years (72/6 = 12). The rule of 72 can help you weigh your investment options.
40. Invest In Companies With Economic Moat
You want to invest in strong companies that will do well in the long term. Looking for a company’s economic moat can help you get there. Economic Moat, a term coined by Warren Buffett, means a company’s competitive advantage over other companies in the same industry, that protects its long-term profits. The wider the moat, the tougher it is for the competitor to gain market share. It provides sustainable competitive advantages to its businesses. Look at a company’s competitive advantage before investing.
41. Read Benjamin Graham’s The Intelligent Investor
When it comes to investing the more you know the better choices you’ll be able to make. That’s why I believe you should put time into educating yourself. Benjamin Graham, the greatest investment advisor of the twentieth century, taught and inspired investors worldwide. His book, “The Intelligent Investor” published in 1949, is considered the stock market bible. It contains Graham’s timeless wisdom suitable in today’s market conditions also. Its study will give you an understanding of how to apply Graham’s principles.
42. Cheap Stocks Are Not Really Cheap
It is advisable to buy a stock because it is available at a cheap price. The cheap stocks may be really worth even less. Remember a company which is doing badly may perform even worse in future. You need to think long term when investing so be sure to do plenty of research before buying stocks. Risk your money only if you can afford to lose it.
43. Avoid Speculation
Distinguish between investments and speculation. It is advisable to avoid speculation. If you decide to speculate, Benjamin Graham tells us to speculate only with a separate small portion of your capital. Don’t risk money you can’t afford to lose. When you’re investing for the long term don’t speculate!
44. Private Equity Funds are for High Net Worth Individuals Only
Private Equity Funds invest in underperforming companies that have the potential for high growth. They work with the company’s management and make strategic decisions to improve the company’s performance. If the company turnarounds and does well, the Funds exit by selling their stake at a premium and you make huge profit. But if the company fails or does not improve, you may lose your capital. Risk your money only if you can afford to lose it.
45. Look at the Quality of a Company’s Management
You can tell a lot about a company by looking at the team who manages it. Phillip Fisher advises to buy the company that have high qualities for management such as integrity, conservative accounting, accessibility and good long-term outlook, openness to change, excellent financial controls, and good personnel policies. He places great emphasis on looking at the quality of a company’s management. Keep this in mind when you’re choosing your investments.
46. Read Warren Buffett’s Annual Letter To Shareholders
One of the best ways to learn anything is to study the strategies of successful people. And when it comes to investing Warren Buffet is someone you want to learn from. Warren Buffett has never published a book on his investment philosophy, but writes a detailed letter to shareholders annually. Warren is famous for his annual letters that are awaited by investors and analysts. The letters contain his strategies. Read them as they will help you invest better. They are available online free.
47. Setup A 10% Trailing Stop Loss Order
You can protect your unrealized profits by setting up a trailing stop order. As the stock price goes up, you can tell your broker to keep trailing it and sell only if it falls 10% from its highest price ever. At that point, the order gets converted to a market order. This strategy avoids unexpected nosedives in your portfolio. To protect your investments, you set up 10% trailing stop-loss orders.
48. Target Superior Investment Returns
Would you rather have average investing results or superior investing results? You probably chose the latter. Remember Graham’s quote, “To achieve satisfactory investment results is easier than most people realize. To achieve superior results is harder than it looks.” Work harder to achieve it. There is no short-term. Keep working on your investment strategy and educating yourself. Eventually you’ll be able to achieve superior investing results, too.
49. Don't Buy Illiquid Shares
Trading Liquidity, a ratio of the average daily trading volume and the shares outstanding, indicates demand and supply of the stock. While blue chips shares have generally high trading liquidity, shares of companies with small capital or small free float has low liquidity. You may not find buyers or correct price when you need to sell them. Try to avoid illiquid shares.
50. Only Buy Closed End Funds At A Discount To NAV
In order to diversify your portfolio, you may want to add a few closed-end funds. Many closed-end funds are offered at a discount. You can add some such closed-end funds. If the fund performs well over time, the discount shrinks and you earn a profit.
51. Invest In Companies With New Products And Services
A good way to pick winning investments is to be on the look for companies that are leaders in their field. Identify the companies which are developing new products or discovered new markets. Before new competitors enter into the market, the company may establish its dominance and the value of your investment will grow. Keep your eyes open for investments like these.
52. Invest Small Amounts Regularly
One common misconception is that you have to be rich to begin investing. This simply isn’t true. The wise way to build up a good portfolio is to first select a few good companies and buy small quantities regularly over a period of time. Don’t invest a large amount all at a time. Start small, work with what you have, and invest regularly. With time your investments will grow into something substantial.
An easy way to do this is with a tool like Acorns.
53. Avoid Companies With Poor Management Integrity
Remember, when you buy a stock you’re buying part of a company. Therefore, you need to avoid investing in companies that are run in a way you don’t approve of. If a company’s management has dubious past or lacks sense of trusteeship for stakeholders, you should never invest in any of its group companies. You should get to know a company before investing in it.
54. Have Realistic Expectations
You need to have realistic expectations when you’re investing. The stock market is not a gambling place. Don’t expect to become a millionaire overnight. You may earn reasonable returns on your investment. You can grow your money by investing but it will take time.
55. Win Over Emotion
When it comes to investing for the long term you need to stick to a systematic approach. Greed, fear, excitement and frustration are your enemy in stock market. Don’t allow the emotions to make your investing decisions. Always maintain a disciplined approach to investing.
56. Invest In S&P500 ETFs and Mutual Funds
Warren Buffett has come out with a very simple rule for startup investors like you. He suggests that you invest 90% in S&P 500 Index ETFs and 10% in short term U.S. government bond funds. While selecting index ETFs, look at their management expenses and go for low cost ETFs. This simple rule can help guide your investing decisions.
Here's a list of the most popular S&P500 index funds.
57. Look At The Economy As A Whole
A company’s performance is influenced by both global economy and domestic economy. The surrounding factors also have an impact on the company, these factors are relating to the industry and the economy. The Economic Indicators such as GDP, unemployment, Inflation, Interest Rates, Budget Deficit, etc. reveal the health of domestic economy which influences company’s performance. A company should not be analyzed on a standalone basis only.
58. Avoid Companies That Buy Back Their Shares At A High Price
Be on the lookout for companies that buy back their own shares at a high price. A repurchase at high level reduces continuing shareholders’ wealth because per-share intrinsic value decreases. Sometimes management goes for buying back shares at inflated prices just to jack up the share price in the market. Avoid companies that do this.
59. A Company's Growth In Core Competence Pays
If you lean on the side of growth investing be sure to look at the core competency in companies that you want to invest in. Core competency provides sustainable competitive advantage and the company benefits from the growth. Graham considers value of potential growth only if the growth is within the core competence or franchise of the firm. Remember this when choosing stocks.
60. Focus On EPS Growth
EPS, or earnings per share, is a metric that you need to pay attention to. Invest in a company whose aggregate earnings are growing together with increasing earnings per-share. Ensure the company has not reduced them through dilution on a per share basis. Buffett explains company’s goal should not be simply growing earnings, but also increasing per-share results.
61. Know Your Risk Tolerance
Always remember investments in securities are subject to market risks. You may even lose your capital. The level of risk investors can take varies from investor to investor which mainly depends on the individual’s risk tolerance. Ascertain your loss bearing capacity and limit your investments accordingly. Understanding your risk tolerance will help you come up with a suitable investment strategy.
62. Keep A Manageable Portfolio
It is difficult to monitor a large portfolio. You need some good investments, not a large list of investments. Limit your share portfolio to a few companies. Have a clear investment strategy and build your portfolio around it.
63. Understand Key Stock Picking Criteria
Before buying individual shares it’s important that you know, and completely understand, the key stock picking criteria. Broadly speaking, you should consider these two factors while evaluating your stocks: growth and valuation. Ideally, a stock should exhibit high growth and be priced reasonably. Use EPS, P/E ratio and price-book value for stock picking. Study this criteria until you fully understand what you’re looking for.
64. Rebalance Your Portfolio
To make sure that you’re staying on target with your investing goals you will occasionally need to rebalance your portfolio. Review the proportion of different asset-classes in your portfolio every year and rebalance them as per your target asset allocation mix. Check that it does not get concentrated in one or more asset classes. But don’t rebalance too frequently.
65. Invest In Funds With Low Beta
If you’re not very risk adverse you can invest in funds with low beta for a little more safety. Look for Funds with beta of 1 or nearly one compared to the broad market. A beta of less than one indicates that the funds return is less volatile than market.
66. Put A Portion Of Your Portfolio In Offshore Growth Funds
In order to diversify your portfolio a little further you can put a small portion of your portfolio in offshore growth funds. The offshore funds invest in some of world-class companies not listed in US stock exchanges. This enables you to diversify your portfolio in European and Emerging markets. It may benefit you from a likely recovery of the European economy and fast growth in Emerging markets such as China and India.
67. Keep A Larger Portion Of Your Portfolio In Stocks
In order to diversify your portfolio a little further you can put a small portion of your portfolio in offshore growth funds. The offshore funds invest in some of world-class companies not listed in US stock exchanges. This enables you to diversify your portfolio in European and Emerging markets. It may benefit you from a likely recovery of the European economy and fast growth in Emerging markets such as China and India.
68. Use Fundamental Analysis
A stock picking strategy using fundamental analysis is more suitable for long term investments. Fundamental analysis helps you in picking value stocks have strong fundamentals – revenues, profits, cash flow, etc. but are available at a good price. Use fundamental analysis to help choose your stock purchases.
69. Read Financial Statements Carefully
Before investing in a particular company, you need to investigate their financial health. You should never invest in a company without going through its Annual Report that comprises the Income Statement, the Balance Sheet, the Cash Flow Statement and Others, such as Management Discussion and Analysis, and the Auditor’s Report. A critical review of the annual report provides in-depth information about the financial health of a company.
70. Use Ratio Analysis
Ratio analysis is a very useful tool to extract the information from financial statements. Financial ratios measure liquidity, activity, leverage, and profitability of a company. Ratio Analysis will help you to screen and pick up stocks consistent with your investment objective. When you’re combing through financial statements be sure to use ratio analysis.
71. Invest In IPOs Sparingly
Securities are initially offered by a company to the public for subscription in the primary market for the purpose of raising capital or funds. These are generally offered at discount to their intrinsic values. You can subscribe to shares in IPOs issued by companies promoted by good promoters. Read their prospectus and other documents carefully.
72. Use Tax-Advantaged Investment Accounts
One smart way to invest for growth is to use accounts that let your money grow without generating a tax bill each year. There are Tax-Advantaged Investments that are either exempt from taxation, tax-deferred or offers other types of tax benefits. Several tax-advantaged retirement plan accounts exist such as IRAs and Roth IRAs.
73. Look Beyond Fixed Deposits
Fixed Deposits with banks provide guaranteed, but modest returns. You may even get negative real interest. Over time, you may find that inflation has eroded most of your wealth. You should keep only a small portion of your savings in fixed deposits and the large portion in other investment alternatives such as stocks, mutual funds and ETFs. This way, your savings will grow faster.
74. Target Rising Industries
Look for companies in rising industries. Find hi-tech companies and the companies with potential to grow in new sectors. Your investment would grow with the success of such companies. As the new sectors carry higher risk, this should constitute only a small proportion of your portfolio.
75. Look For Bonds With High Ratings
The rating companies, such as Moody’s, Standard & Poor’s and Fitch, provide ratings to the bond issues. The ratings that are dependent on the credibility, stability and financial health of the company, help you to determine the risk associated with the Bond. Buy only investment grade bonds having ratings from Aaa/AAA to Baa/BBB. Avoid high-yield bonds or junk bonds that promise high return as you may lose capital.
76. Do Your Homework
Would you be surprised to learn that most investors do absolutely no researching when it comes to investing? “If you read the annual report, you will have done more than 98% of the people on Wall Street” well known investor and author Jim Rogers says, “most people don’t bother even doing the basic homework.” Fisher, a great investor, also warns buying a company without having sufficient knowledge of it may be dangerous. Bottom line: Do your homework. Don’t invest in companies that you know nothing about.
77. Buy Stocks At A Lower Price That True Value
Peter Lynch warns that if you purchase grossly overpriced stock, you won’t make any money even if everything goes right. The key to successful investing is to find the intrinsic values of the stocks and then pick only the ones that are quoting at significant discounts to these values. You buy only when you get the right price. As a value investor, you can afford to wait as long as you want for the right price.
78. Look For Stocks Priced Less Than 1.5x Book Value
79. Look For Stocks Priced Less Than 15x EPS
P/E ratio is the ratio of market price per equity share and earnings per share. It is a common measure of how the market currently values the firm’s earnings. If you are a value investor, Graham advises not to invest in stocks where the P/E ratio is more than 15. Following this rule can help you choose quality investments.
80. Use Graham's Magic Multiple
You can use Graham’s Magic multiple to pick stocks. This multiple is just the multiplication of the two most commonly used valuation ratios, PE and PB. Choose stocks with Graham’s multiple that are less than 22.5.
81. Use Graham's Margin Of Safety
Success of value investing largely depends on the correct estimation of the intrinsic value of the stock. Graham’s margin of safety, the difference between a stock’s price and its intrinsic value, provides you cushion against estimation errors. The farther the purchase price is below its intrinsic value, the greater the margin of safety against future uncertainty and the greater the stock’s resiliency to market downturns.
82. Read Peter Lynch’s Book “One Up On Wall Street”
The book “One Up On Wall Street” ranks as one of the best investment primers ever for small investors. Peter Lynch guides you on developing strategies in buying, selling and holding equities with a preference for value investing in companies that have sound fundamentals. His investing philosophy generally resembles the value investing and is largely consistent with Graham & Buffett’s, but he also had successful investing in Small Cap and Growth stocks.
83. Read Benjamin Graham’s “Security Analysis”
The classic book “Security Analysis” remains as relevant today as when first published 80 years ago in 1934. It contains teachings of Benjamin Graham, “the father of value investing,” and is applicable to a wide diversity of market conditions, countries, and asset classes. It shows you a road map for investing to follow.
84. Stay Away From Stocks In The Hottest Industries
Hot stocks and hot industries are constantly in the news. And everyone talks about them.
Peter Lynch tells, “Hot stocks go up fast, usually out of sight of its actual value, but they fall just as quickly”. Hot stocks are a dime a dozen. If you’re investing for the long term do your homework and go for quality.
85. Avoid Over-Diversified Companies
Avoid investing in companies diversifying beyond their core competence. Such companies try to sustain growth through aggressive acquisitions. The acquisitions may dilute your shareholdings if acquisition cost is paid with the issuing of new stocks.
86. Learn Peter Lynch's Strategies
The methods incorporated by Peter Lynch are extremely simple and can be put into practice even by those who are new to this field. His book, Beating The Street, explains his own strategies for investing and offers advice for how to pick stocks and mutual funds to assemble a successful investment portfolio. ‘Peter’s Principles’ will provide you a great deal of information about the world of finance.
87. Invest In One Or Two Growth Funds
Growth Funds invest in growth companies which are expanding profits and earnings. Select one or two highly rated growth funds and invest a small amount periodically. Let your money compound over a long period.
88. Invest In One Or Two Value Funds
By investing in both, value funds and growth funds, you’ll keep your portfolio diversified. Value Funds invest in the companies that are deemed to be undervalued in price. Select one or two highly rated value funds and invest periodically. Keep your money invested over a long period.
89. Don't Invest In Too Many Funds
Although it’s important to diversify your portfolio it’s also possible to over diversify. A fund invests in stocks or many companies. A single good fund would give you all the benefits of diversification. Therefore, there is no need to invest in too many funds. Rather do your homework carefully and select the best performing fund. Over diversification dilutes your return.
90. Select Three Funds
Mutual funds are simple and good instruments to build your portfolio. There are different types of funds such as index fund, value fund, bond funds, balance funds, sector funds, large cap, medium cap and small cap funds. Each fund has its own investment strategies and objectives. They have different risk and return profile. William J O’Neil advises to go for value or growth funds. Buffett advises for index fund.
91. Be Careful When Investing Globally
Templeton, a value investor says, “If you search worldwide, you will find more bargains and better bargains than by studying only one nation.” If you want to diversify globally, pick the companies in countries that have investment friendly environment with less government regulation, interference and ownership issues.” Before investing globally, it is crucial that you perform research and have a clear understanding of what you’re getting in to.
92. Invest In International Bonds
You may invest a small portion of your capital in government bonds in a country with no fiscal deficits or trade deficits and a high savings rate. Pick good sovereign bonds abroad. This will provide you steady return and boost your portfolio’s risk-adjusted performance.
93. Develop A Good Investing Strategy
Many different types of strategies have been suggested by great investors. These strategies have different sets of criteria to choose stocks for different categories of investors. Study them and pick up the strategies based on your attitude, risk averseness and financial target.
By doing your research you’ll be able to develop a good investment strategy for YOU.
94. Get Started!
When starting to invest, keep the portfolio small and simple. Only invest in two or three good stocks and funds and some cash equivalents. Expand it slowly and steady with your learning. The hardest part is getting started. Once you start investing you can figure everything out as you go.
95. Avoid Derivatives At First
If you are a new comer, don’t start with derivatives such as futures and options. Derivatives are highly speculative in nature. They are very risky and you may lose your capital fast. You may think of venture in these securities after you gain sufficient experience in investing.
96. Keep Away When The Market Is Volatile
When the market is volatile, the price of shares fluctuates widely. It is difficult to ascertain the right price of a stock in a volatile market. It is unsafe to either buy or sell during this period. Wait and let the market stabilize. Volatility generally remains for a short period of time.
97. Saving On Taxes Shouldn't Be Your Main Objective
Some people invest just to save on taxes and don’t look beyond that. You should save tax but also invest for growth and better return on your capital. Look at the post tax rate of return. This will meet your objective of achieving higher return.
98. Look For Low Price Earnings Growth
Price Earnings Growth ratio is the P/E ratio divided by the company’s growth rate. Stocks that have a lower P/E, but high growth rate, will have lower PEG. This ratio indicates how low-priced the stock is in relation to its earnings growth. Lower PEG means the stock is undervalued. Pick an undervalued stock with PEG ratio less than one.
99. Buy A Company That Uses Resources Efficiently
Check how efficiently the management is using its financial resources. This is reflected in Return on Equity and Return on Capital. They measure how efficiently a company uses its capital as well as reinvested earnings to generate earnings. Invest in efficient companies.
100. Invest In Companies With Good Corporate Governance
Look for companies with a reputation of high ethical business conduct. A good corporate governance policy safeguards stockholders and stakeholders’ interest. If companies are well governed, they will usually outperform other companies. Poor corporate governance weakens a company’s potential and at worst can pave the way for financial difficulties and even fraud. You should see whether the company conforms to all the rules laid down by the corporate governance policy.
101. Keep Your Credit Score High
The banks check your credit score while approving you a personal, car or home loan or a new credit card. Your credit rating scores are maintained and updated by Credit Information Companies. Your score depends on your credit history showing timely payment of loans, credit card dues, telephone bills etc. Late payments and defaults drag your score. A good CIBIL score enhances your credit-worthiness.
Use a free tool like Credit Sesame to monitor your credit.
102. Don't Invest Based On Advertisements
Many companies promote IPOs or new funds through aggressive marketing tactics. Always do your own research before buying any financial products. Brokers and agents generally push higher-commission products.
103. Look For No Load Mutual Funds
You don’t have to pay a front-end or back-end load when purchasing or redeeming the mutual funds issued under the SEC rule 12b-1. The mutual fund charges only an annual marketing or distribution fee as an operational expense @ 0.25-1% of the current value of the investment. To get the most out of your investments look for no load mutual funds.
If you use a financial advisor, make sure they are disclosing their fees.
104. Avoid Complex Investment Products
Many companies and funds come out with innovative financial products which are complex to understand. Analyze them meticulously. Before you invest in anything, you need to understand the risk and reward involved.
105. Park Surplus Funds In Money Market Accounts
The money market securities mainly include short-term fixed income instruments, treasuries and money market funds. Although they do not offer high returns, you still earn more compared a savings account. You may keep your money parked here until you get better medium term or long-term investment options.
Here's our list of the best money market accounts.
106. Buy Companies With A High Sustainable Growth Rate
Buy companies with high sustainable growth rate. It is the reasonable growth rate that a firm can sustain and can finance using internally generated assets and without additional debt or equity. Its growth based on internal resource generation and the stock records consistent growth.
107. Invest In Small Companies Selectively
Some of the smaller companies have the potential to turn into the large blue chips of tomorrow. The small-caps have had greater returns than large-caps. For example, small-cap stocks in the U.S. returned an average of 12 % compared to 11% returned by the Standard & Poor’s 500 Index (S&P 500). But you should still invest in small companies selectively.
108. Investing Is Not Trading
Investing is not trading. They are quite different ways of making gains from the market. They have different risk profile and need different strategies. If you are a long-term investor avoid trading.
109. Learn Technical Analysis Before Trading
Technical analysis is based on the study of charts and graphs of trading patterns and prices to forecast the future movement of prices through the study of past market data. Statistical tools provide technical indicators based on price and/or volume data. They use current and past market data to indicate market trends and to estimate the future price, especially in the short term. Learn some common technical indicators such as Moving Averages, Advance- Decline Ratio, Relative Strength Index (RSI) and Bollinger Bands before trading.
110. Focus On The Future
In investing, it’s what happens in the future that matters most. Though current and past data are relevant for any meaningful analysis, your decision has to be based on future potential rather than on what has already happened in the past.
111. Don't Buy Penny Stocks
You can accumulate a large number of penny stocks paying only a few dollars. But in investing, it is the quality and not quantity that matters. There is also a common misconception that there is less to lose in buying a low-priced stock and investment can multiply quickly. But in reality, penny stocks carry more risk than shares priced higher. Don’t buy penny stocks.
112. Use A 401k For Your Retirement Plan
If you are working for a profit organization, use a 401(k) plan for retirement savings. Put the maximum savings allowed into a tax-deferred investment account. Be sure to contribute enough money to get the employer match if offered by your company. Allocate the money in your retirement plan depending on the amount of risk you are comfortable with.
Make sure you stay up to date on the 401k contribution limits.
113. Use A 403b For Saving For Retirement
If you are working for a non-profit organization such as educational institution, church and charitable organization, use 403(b) plan for retirement savings. This is similar to a 401(k) plan. Put the maximum savings allowed into a tax-deferred investment account. Allocate money in your plan depending on the amount of risk you wish to expose your retirement savings. This is also known as a tax-sheltered annuity.
114. Minimize Investing In 457 Plans
Though 457 Plans are similar to 403(k) and 403(b) plans, the contributions under 457 plans get mixed up with the organization’s fund. These are not kept separate. If the company faces a financial crunch, your retirement fund would be at risk. Protect yourself and minimize investing in 457 plans.
115. Low P/E Does Not Mean Undervalued
P/E ratio is a common measure of how the market currently values the firm’s earnings. It is a ratio between market price per equity share and earnings per share. But a low P/E ratio doesn’t necessarily mean a stock is undervalued, nor does a high P/E ratio necessarily mean the stock is overvalued. Look at the company’s performance.
116. Ignore Short Term Price Movements
Don’t panic when your investments show short-term downside movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term.
117. Park Your Money In Money Market Funds
Money market mutual funds are an open-end mutual fund which invests only in money markets securities and other short-term securities, usually of less than 30 days maturity. They are very liquid and provide good returns.
118. Keep The Winners
Do not sell stocks after they have increased by a certain percentage. Instead, keep your top performing stocks forever. Peter Lynch says much of his overall success was due to a small number of stocks in his portfolio that returned big.
119. Sell The Losers
Peter Lynch says, “In this investing business, if you’re good, you’re right six times out of 10. You’re never going to be right nine times out of 10.” Recognizing your losers is hard because it’s also an acknowledgment of your mistake. But be honest when you realize that a stock is not performing as well as you expected it to and move on before your losses become even greater. Sell losers.
120. A Stock At A 52 Week Low Is Not Necessarily A Bargain
A stock at a 52-week low not is not necessarily cheap and you shouldn’t automatically add it to your portfolio. Buy a stock only if it qualifies criteria set under your investing strategy. Invest only if the company’s fundamentals are intact. Hefty discounts do not mean a good buy.
121. Start Investing For Retirement Now
Normally you wouldn’t think about retirement when you’ve just started earning an income. But if you start early, the effects of compounding can be huge. By planning and investing early for retirement, you allow your investments more time to grow. Your savings will grow with the power of compounding. The sooner you start investing for retirement the better.
122. Ignore Short Term Predictions
If you are a long-term investor, your investment decisions should not be guided by short term forecasts. It is very difficult to predict tomorrow’s market. Stick with your chosen investment strategy and ignore short term predictions.
123. Market Crises, Though Unavoidable, Are Not Permanent
Past events show that the market encounters crises, such as the bursting of the technology and telecom bubble in 2000’s and 9/11. These crises create fear and uncertainty but only for a short period. The market crashes but recovers and continues to move on. The long-term trend has remained upward. The market has grown despite many crises in the past. The S & P 500 Index has risen from 100 in early 1970s to 1800 in 2014. Keep your patience during crises and avoid emotional behavior.
124. Don't Try To Time The Market
It is very difficult to predict and catch extreme peaks or troughs in the market. The investors who attempt to time the market are generally guided by emotion. If you want to be a successful investor, avoid emotional behavior.
125. Buying Companies You Don't Understand Is Gambling
If you want to be a successful investor, study and develop an understanding of a company’s position in the industry, its products, its economic moat, and its valuation. Investing is gambling if you’re not taking the time to educate yourself. If you’re not willing to research a potential investment then stick to what you know.
126. Don't Reallocate Your Accounts Too Frequently
Make a retirement plan and stick to it. Avoid frequently reallocating the funds. Reallocating your retirement account frequently in an attempt to maximize yields may not only cause you to lose your way as it relates to retirement savings, but it can also cause you to unwittingly expose your savings to much higher risks than otherwise necessary.
127. Understand Mutual Funds
Mutual Funds pool cash from investors and invest in securities. There are different types of mutual funds and they have different investment objectives and strategies. Read their documents before selecting any fund. Choose a fund consistent with your own investment objectives.
128. Ignore Short Term Underperformance
Sometimes your portfolio may pass through periods of under-performance compared to the overall market. It happens with great investors too! Practice patience.
129. Don't Leave A Bear Market
Don’t leave the ground. Build up your courage and stay. Rather, continue investing in a bear market. During the bearish phase of the market, invest in good quality companies for the long term. You can make the most of your money in the future. Historically, periods of low returns have been followed by periods of higher returns. Periods of market uncertainty provide wealth-building opportunities for the patient, diligent, long-term investors.
130. Invest Some Of Your Portfolio In TIPS
Historically inflation is a reality and erodes your savings especially if invested in bonds and other fixed securities. The Treasury inflation-protected securities (TIPS) protects your investment against inflation and has the guarantee of the US treasury. Maturity value and interest rate are linked to Consumer Price Index (CPI). You can have a small percentage; say 10%, of your portfolio allocated in TIPS.
131. Take Time To Learn From Great Investors
Sharpen your investment strategy by educating yourself. Read about some outstanding investors such as Graham, Fisher, Buffet, Templeton and Lynch and how they made their fortunes. Each one has dramatically exceeded market performance. Understand their innovative ways to analyze and pick up securities. Read. And read and read, to be a successful investor.
132. Invest In Balanced Funds For Moderate Returns
If you want some regular income and also capital appreciation along with safety, you may keep a Balanced Fund in your portfolio. The strategy of this fund is to balance the fund’s portfolio. To balance the fund, money is invested in both bonds and equities with the predetermined weights allotted to the asset class; say it could be 60:40 for equities and bonds. It provides moderate returns with lower risk and lower volatility.
133. Substitute Fixed Deposits For Fixed Maturity Funds
Fixed Maturity Funds are closed-ended debt funds with a fixed maturity date. The Fund is parked in corporate debts, government securities and money market instruments with matching duration. Your final returns are not impacted by fluctuations.
134. Invest In Government Bonds
Bond yields and its market price move in opposite directions. High inflation and a high interest rate pushes bond yields up and brings down the bond price in the market. Investments in Government Bonds are free from default and provide reasonable returns, especially if invested when Bond Yields are high.
135. Contrarian’s Strategy Brings Long Term Appreciation
A contrarian goes against prevailing market trends by buying good stocks that are presently performing poorly but have potential to perform well. A contrarian trading theory recommends making investments contrary to the apparent direction of the market or commonly accepted wisdom. Some great investors such as Sir John Templeton and Jim Rogers adopted a contrarian trading strategy to achieve fantastic returns. The primary objective of the contrarian strategy is long term capital appreciation.
136. Search OTC For The Great Companies Of Tomorrow
OTC helps start-up new generation entrepreneurs to raise capital from investors without going through Stock Exchange. The trading is carried out by a market maker who provides both buy and sells quotes for a stock and is ready to take a position in the stock. Analyze to find great companies of tomorrow. Till 1972, the stocks of Wal-Mart were traded as OTC shares.
137. Cut Down Your Portfolio Size
A huge portfolio in size (not in money) shows that you are not following any clear investment strategy. Try to cut down the portfolio to a manageable level by weeding out the losers or lowest gainers.
138. Start With the Dow Jones Industrial Average
A new entrant should start with stable and quality companies. Pick up some blue-chip companies in the DJIA Index. Stick to blue-chip stocks that are known to be consistent performers. Blue-chip stocks are likely to fetch your capital appreciation with a steady stream of dividends. You should not adventure in volatile stocks at the beginning.
139. Gradually Expand Your Portfolio
Once you have acquired a feel for the market through blue chips, you can explore the mid-cap and small caps. Do your homework to pick up some good growth companies. Once you understand the investing process better, you can gradually expand your portfolio to include other categories.
140. Invest In Individual Retirement Accounts (IRA)
If you have any employment income, you may contribute to an Individual Retirement Account. Your contributions are tax deductible under certain conditions. Understand their tax implications and contribution limits. Avail the available benefits.
Make sure you understand the most up to date IRA Contribution Limits.
141. Contribute To Health Savings Accounts (HSA)
Investments in health savings accounts are generally tax deductible. Your money compounds without taxation. An HSA is one of the best ways to invest because it has a triple-tax benefit. You can pull the money out at any time tax free for medical expenses, but you can also use it like a traditional retirement account as well.
142. Setup Your Own Retirement Plan If You're Self Employed
If you work for yourself, set up a retirement account on your own doing some paperwork. Select and design a plan which meets your post retirement needs. Your investment in self-employment retirement savings plans may be tax deductible upon fulfilling prescribed conditions.
Here's the most popular individual 401k options.
143. Look For Management Qualities When Picking Individual Stocks
The quality of management is the single most important criteria in choosing a company.
When you buy a stock, you are buying a participating interest in the company run by its management. Its performance depends on the people behind it.
144. Identify Good Commodities Companies For Long Term Investing
The commodity sector is cyclic in nature. The business cycle is long. Pick up stocks when the industry is coming out of a weak phase. While investing in commodity companies, look for market leaders. Their performance depends on their capacity and the efficiency of their plants. Make a comparative analysis before investing. Avoid companies with large debt because during a weak cycle phase, they may find it difficult to service debt.
145. Buy Commodity Stocks At A Replacement Price With A Margin Of Safety
The businesses of commodity companies such as cement and steel are simple to replicate.
No company can make significantly higher returns than its peers. Compare its market capitalization with the replacement capital cost for plants with matching capacity and buy as and when available with adequate margin of safety.
146. Don't Underestimate Liquidity Risks
When there is overall panic, liquidity dries up. Information gaps between traders widen, spread and transaction costs go up. When stocks become illiquid, their prices fall further.
Your investments in illiquid stocks may suffer.
147. Buy Commodity Stocks At The Low End Of The Cycle
Since commodities are cyclical in nature, the holding period for commodity stocks are longer for reasonable gain. Buy the share only when it falls to the low end of the cycle. Having bought, wait until the turnaround happens. It could be a few years.
148. Beware Of The Lure And Folly Of Forecasts
Economic forecasts have fascinated and puzzled investors, traders and even analysts.
Forecasting about an economy or market direction is like a shot in the dark and may go wrong. Don’t take them too seriously.
149. Invest In Companies With A High Return On Equity
Return on Capital (RoE) is profit after tax, expressed as a percentage of the shareholders’ funds. It tells you how efficiently the company uses shareholders’ money and how much it earns with that money. Invest in the company that provides consistently high returns on the invested money.
150. Bonds Are Not Efficient Instruments For Retirement Planning
Even though bonds have worked well over the long term does not ensure that they’re efficient for your retirement planning. Their nominal yield provides you less purchasing power due to inflation. Bond payouts are fixed. Post tax returns are even worse.
151. Stocks Are More Desirable For Retirement Planning
DJIA and S&P 500 Indices beat inflation in the long run and provide higher returns. Stocks appreciate and stock dividends grow. Dividend growths give you some protection to your cash flows against inflation. While investing for your retirement fund, keep a mix of shares and cash equivalents.
152. Pay Taxes On Time
Pay attention to your tax liabilities and avoid interest and penalties. Disclose all income earned from various sources. Save tax availing all admissible exemptions. Do proper tax planning. A dollar saved in tax is a dollar earned.
If you owe taxes, make sure you take advantage of paying your taxes on a credit card to earn rewards.
153. Estimate Your Retirement Fund Needs
With rising longevity, plan for at least 25 years after retirement. Think of maintaining the pre- retirement standard of life that would be about three- fourth of pre-retirement annual expenses. Calculate the requirement of retirement corpus post tax and post inflation. This will help you determine how much money you should be stashing away each month.
154. Don't Be The Victim Of Mis-Selling
There is neither dearth of financial products nor financial intermediaries. Miss-selling is common especially depending on the commission that brokers, distributors or financial agents get. Do your home-work carefully. Don’t be lured by promises in the attractive advertisements.
155. Understand The Risk-Reward Balance
A large number of financial products are available in the market. Each carries a different risk and return. You have to be selective. You have to understand the risk of each product, returns and their maturity. Balance risk and return depending on your profile and needs.
156. Select Your Equity Investment Routes
There are different routes to invest in stocks. You can invest in stocks directly or through equity funds or exchange traded funds. You need do devote more time to analyze the stocks and companies’ fundamentals. While selecting mutual funds or ETFs, look at their performance over the last 3 to 5 years on a monthly rolling basis, their fees structure and also ratings given by reputed rating agencies.
157. Understand Safe Debt Investments
Investments in Treasuries are safe and free from default. Deposits with banks are also good for safety. The next option is a debt fund, but it’s not always safe. There are wide variations in the performance of debt funds. There is also the possibility of losing part of your principle.
Make sure you also understand the difference between a bond fund and individual bonds.
158. Limit Your Corporate Debt Investments
Though corporate debt can offer higher interest than banks, they are not safe and not secured. They are not liquid and you may have to sell them at a discount. Government bonds are a better option than corporate bonds.
159. Fixed Maturity Plans Are Tax Efficient
The Fixed Maturity Plan has emerged as an attractive avenue for a short-term investment.
FMPs are close ended mutual funds with a fixed maturity date and the funds are parked in corporate debt, government securities and market instruments of matching duration. FMPs offer tax advantages.
160. Avoid Pyramid Schemes
Always remember if something sounds too good to be true, avoid it. A pyramid scheme promises payment without any economic activity just by inducting new members. Pure pyramid schemes are banned in several countries. But they emerge under dubious names with new formats. And their promoters would usually vanish with your money.
161. Protect Your Savings From Inflation
Inflation erodes your wealth. This can be overcome by investing in blue chip companies and high-quality equity mutual funds for the long term. Keep your investments simple to monitor risks involved.
162. Safety Over Return
Investing is risky. Prefer safety over return. Keep your money safe even if it earns a lower return. The promise of high returns in short times may influence your decision to buy financial products, this may ultimately land you in financial loss.
163. Only Consult With Fee-Only Financial Advisors
A financial advisor working for a percent-based commission has his interest ahead of yours. He gets commission driven by sales. He will push products on you. An advisor with a high standard of ethics will charge you a fee only and will give you honest advice.
164. Many Financial Products Are Mis-Sold
Many financial advisors, through television and print media, provide advice which is not in the best interest of investors. Financial Planners may influence your decision to buy financial products you don’t need. Listen but critically analyze their advice before taking action.
165. Technical Analysis Needs Professional Expertise
Technical analysis is based on interpretation of charts and graphs to find meaningful patterns. The estimates based on wrong interpretation may lead to the wrong forecast about the short-term price movements. Depend on professional technical analysts only.
166. Don't Use Technical Analysis Mechanically
Technical analysis is based on interpretation of charts and graphs to find meaningful patterns. The estimates based on wrong interpretation may lead to the wrong forecast about the short-term price movements. Depend on professional technical analysts only.
167. Don't Try To Beat The Market
Technical analysis is based on interpretation of charts and graphs to find meaningful patterns. The estimates based on wrong interpretation may lead to the wrong forecast about the short-term price movements. Depend on professional technical analysts only.
168. Stick To Simple Trading Rules
For maximum effectiveness follow these three simple trading rules: keep your bets small, cut losers and ride winners. Set your cut off percent for loss and profit bookings. Keep emotions under control, especially when the market is volatile.
169. Only Invest Up To 5% Of Your Portfolio in Bullion
Bullion such as Gold and Silver are safe and liquid investments. They are used as a hedge against inflation, currency devaluation and economic crisis. Keep a mix of Gold and Silver constituting 5% of your portfolio.
Check out our Apmex review for a good company to purchase bullion at.
170. Look At A Company's Product Life Cycle
The growth of business depends on the present stage of the product demand and chances of new substitute products coming into market. Select market leaders who can sustain their edge over time. Some products are short lived and replaced by new hi-tech products. Invest in companies with products unlikely to be replaced.
171. Follow Your Own Set Of Investing Rules
Investing decisions should be based on long term goals and not on emotional reactions. Benjamin Graham, father of Value Investing, advises to maintain discipline with your own set of rules and keep patience.
172. Don't Invest In Bond Funds When Rates Are Likely To Increase
When interest rates are low, yields on treasuries are also low and their prices are high. Yields and market price move in opposite directions. If interest rates increase in the future, the treasuries price will decline recording a loss for you.
173. Focus On Investment Quality, Not Quantity
Your investing success depends on the correct selection of companies and buying them at the correct price. To be a successful investor, you do not need a large number of stocks. You need only a few outstanding companies. Keep your list of stocks short packed with the best companies. Focus on investment quality, not quantity.
174. The Dogs Of The Down Is A Simple High Performing Strategy
Pick up the top ten dividend yielding companies out of the 30 listed on DJIA. These are known as Dogs of the Dow. Re-balance your portfolio every year. This strategy produces return better than DJIA over a long period.
175. Keep A Small Amount Of Money In Your Savings Account
A savings account adds liquidity to your portfolio. You can withdraw the money anytime. But savings accounts offer only 2-3% interest, which is very small. Therefore, keep only a small amount of money in a savings account that meets your small and immediate needs. Park your money elsewhere to earn more.
Check out our list of the best high yield savings accounts.
176. Investing Does Not Mean Gambling
Gambling depends on pure luck. Your luck works for you. When investing, you don’t put money on luck. You put your money in well researched investment products where your money can grow. Investments are generally for longer term, for larger needs and future demands.
177. Invest Wisely To Beat Inflation
Inflation causes money to lose value. Money will not buy the same amount of goods or services in the future as it does now. It is therefore important to consider inflation as a factor in any long-term investment strategy. Look at an investment’s ‘real’ rate of return, which is the return after inflation. The aim of investments should be to provide a return above the inflation rate to ensure that the investment does not decrease in value.
178. Ignore Market Sentiment
Sentiment can change overnight with an unexpected event or news, but not the ground realities. The market may react sharply and share price may move in either direction. Don’t buy or sell during this period. Let the market cool.
179. Invest In Long Term Bonds When Rates Are High
When interest rates are high, you can venture into the fixed-income market. Lock your money in long term or medium-term bonds. Besides getting good regular income, your investment appreciates when the interest market goes down.
180. Avoid Speculative Stocks
Speculative stocks have a potential for huge profits, as well as the potential for substantial losses. Companies having businesses that are uncertain in their outcome fall under this category. For example: Oil and Gas exploration company. Speculators in the stock markets trade in these stocks to earn quick money but these stocks are extremely risky.
181. Avoid Junk Bonds
Junk bonds carry ratings that are below investment grade. These ratings indicate poor credit worthiness of the company issuing the junk bonds. Companies with below investment grade ratings offer a higher interest rate to attract investors. These bonds are very risky and you may even lose capital partially. Before investing in any bonds, look at the ratings given by rating agencies such as Moody’s, Standard & Poor’s and Fitch.
182. Remember This Rule When Buying Bonds
Remember the general rule when buying bonds - “lower rating means higher risk and so higher returns.” Bonds are rated by credit rating agencies Moody’s, Standard & Poor’s and Fitch. Ratings indicate the investment grades and the risk associated with the issuer company and the bond issue. The ratings are based on the credibility, stability and financial health of the company. The yield and rating grades have inverse relationship. Buy only bonds having higher ratings.
183. Invest In Sector Funds Selectively
Sector funds invest in sector specific ETFs and mutual funds. For example: Technology, Oils & Gas, FMCG, etc. The performance of these funds primarily depends on the sector in coming years. If a particular sector does not perform then the fund will be affected negatively. Before investing, look at the microeconomics related to the sector.
184. Buy Companies With A High Brand Image
This is the simplest stock picking strategy. A brand is created over a long period through high quality products and consistent growth. A successful brand has an intangible value attached with it and the market is always ready to pay for its brand value. Pick up the companies that offer strong brand names.
185. Watch Local Companies For Growth
If you notice a local company growing and performing well then research further. If it appears to be on an upward growth trend consider investing. You never know, it may turn out to be an acquisition target at a very high premium later.
186. Arbitrage Opportunities Provide A Small Gain With Low Risk
Arbitrage is a kind of deal to earn profit from the differences in price between the two markets. You can buy securities in one market and at the same time sells them in another market at a differential price. You make profit through using arbitrage opportunities in two markets and by exploiting price gaps. This is hard to do, but a lot of investors take advantage of this strategy in currency and Forex trading by looking at the different values of two currencies and trading the difference.
187. Don't Get Involved In Insider Trading
Trading stock based on ‘unpublished price sensitive information’ leaked by the company’s insiders is illegal and prohibited. It is a crime and if you do it you will be put behind the bar. Never contact any person such as company’s management, its employees, auditors or associated professional firms for getting any unpublished price sensitive information.
Even if you're a low-level employee, you can get busted for insider trading.
188. Use Online Trading Platforms
Online trading is very fast. You need a computer and high-speed internet to get started. Open an account with one of the best online brokers to get started. You can place buy/sell orders with the use of a brokerage’s internet-based trading platforms. The broker software helps you to monitor you accounts also. Generally, a broker’s website provides price and other relevant data.
189. Select A Brokerage And Open An Account
You can buy a stock that trades on the stock exchanges through your broker. You have to open an account with a stock brokerage firm before availing the trading related services. It is advisable to do some research on stock brokerage firms. Information on them can be found on the Internet. Compare various stock brokerage firms, their services and fees. Select the best.
190. How To Place Buy And Sell Orders
You can place a buy/sell order on the internet. Visit the brokerage firm’s web site and open your account. For trading shares, enter the name of company and the number of shares you want to buy or sell. Select the options for placing your order and put your instructions, such as the type of order and its validity period. You can also place an order over the phone or by visiting the broker’s and sub broker’s office.
191. Focus On Passive Investing
Passive investing is a buy and hold investment strategy. If you are a long-term investor, your main aim is capital appreciation and limited maintenance. Do limited buying and selling of securities. You shouldn’t be bothered with the daily price fluctuations in the market.
192. Active Investing Is Trading
Under an active investing strategy, the investor engages in frequent buying and selling of securities. Investors’ actively follow the investment made and wait to grab a profitable opportunity to book profits. Active investing results into short-term investments. It is more of trading than investing. It you are a long investor, adopt passive investing and not active investing. It’s important to build a diversified portfolio that will work over the long term.
193. Save In An Educational IRA
An Education IRA is a savings plan for education. Parents and guardians are allowed to make non-deductible contributions to an education IRA for a child under the age of 18. The earnings are tax-free when used for education expenses. The funds in an education IRA can be withdrawn tax free when they are needed for educational purposes.
You can find the best 529 plans here.
194. Use A 529 Plan To Save For College Expenses
The 529 Plan is a savings plan for college education. The investment earnings grow to meet the higher costs of a future education. With the prepaid tuition option, you can even lock in today’s tuition rates, and the program will pay future college tuition at any of the state’s eligible colleges or universities. Another option lets you save money in a tax-deferred account for future tuition fees.
Make sure you understand what the qualified educational expenses are before you start.
195. Understand The Basics Of Securities Regulations
Various Acts have been enacted by the Governments for regulating the stock markets. Regulatory Authorities such as the Securities and Exchange Commission have been established for regulating markets and protecting the interests of investors and others. Read and understand the main provisions. Although a regulatory agency seeks to regulate the activities of the securities markets, this does not guarantee a safe investment. You should always be careful while investing.
196. Adopt A Buy And Hold Strategy
The buy-and-hold approach is an investment strategy in which stocks are bought and then held for a long period, regardless of the market’s fluctuations. The strategy rests upon the assumption that in the long run stock prices go up. The buy and hold approach minimizes costs and allows the investor to participate in the long-term growth of a company.
197. Save In A Defined Contribution Retirement Plan
A defined-contribution retirement plan is a retirement savings plan that allows an employee to put a percentage of his salary into a tax-deferred investment account. 401(k) plan and 403(b) plan are examples of defined-contribution plan. Contribute to these accounts, especially if you are eligible for an employer match.
Make sure you understand the pros and cons of a Roth 401k as well.
198. Look For Higher Float Stocks
Float is the total number of shares publicly owned and available for trading, out of the total outstanding shares. Stocks with smaller floats are generally more volatile than those with larger floats. Look for higher float stocks.
199. Invest In Tax-Free Bonds
The federal and the state governments issue tax-free bonds. The interest is not taxable. If you are in higher income brackets, invest and avail the benefits. Your effective rate of return increases substantially. Moreover, investments in these bonds are safe.
200. Avoid Hefty Commissions
Some Funds charge high entry, exits and annual management fees. Brokerage firms also charge hefty commissions. These fees reduce effective return on your investment. Minimize these expenses and avoid paying hefty commissions.
Make sure you also understand when investment commission matter and when they don't.
201. Big Institutions Have A Large Impact On The Stock Market
Big mutual funds, pension funds, hedge funds and banks have strong buying power. They buy and sell in bulk. Their action influences the market. For example, if a stock is included in a market index such as DJIA and S&P, the Index Funds make purchases of the stock to rebalance their portfolio. This pushes up the stock’s share price further. You can take your proactive investment decisions and exploit the opportunities.
202. Look For Companies With Accelerating Earnings Per Share Growth Rate
If a company’s earnings growth is accelerating, it indicates it’s growing at a faster pace each quarter. Its earnings growth accelerates from quarter to quarter. Growth rate increases. This is characteristic of a winning stock. The acceleration needs not to be continuous, but it should be in recent past. If earnings growth becomes stronger each quarter, investors would be attracted more and that would push up the stock’s share price further.
203. Never Invest Your Emergency Fund In The Stock Market
The stock market is unpredictable. In case of urgency, you may be forced to sell your investments even if the market is low. Hence you should keep a separate emergency fund with banks that you can access whenever required. The banks offer fixed deposits schemes that allow you to withdraw before maturity too. You should never invest your emergency fund in the stock market.
204. Keep Cash For The Next Three Months Of Expenses
You should not depend on the stock market to meet your routine expenses. Similarly, you should not resort to breaking fixed deposits to meet such expenses. Plan your cash flows for the next three months and keep adequate cash to meet next three months expenses. You can park the fund in money market instruments to earn some interest too!
205. Focusing Only On Low P/E Stocks Is A Myth
Stocks with low price-to-earnings (PE) ratios may look cheap and attractive. But they may not be worth to buy. Invest only in good companies. Buy a stock with strong fundamentals as and when available at low PE. The advice that you should only buy stocks with low price to earning ration is an investing myth.
206. You Must Take Advantage Of Your Employer 401k Match
If your employer matches your contribution under you 401K plan, you must avail this and invest the maximum permissible amount. This is like your additional income. And your investment grows with the power of compounding.
207. Ignore Complex Investment Products
Don’t invest in any new investment product unless you understand it fully. Complex investment products are designed more in favor of their sellers. Investors can come under their trap. Ignore complex investment products. Always remember the Subprime mortgage crisis!
208. Avoid Leverage
In good times, leverage investing magnifies your gains. And the chances are there that soon you will soon get addicted to leverage. When bad times come, you will lose all the gains. Finally, you may be a net loser. Avoid leverage.
209. Invest, Don't Gamble
In gambling, your money can double, triple or quadruple overnight; but not in the stock market. Don’t expect extraordinary gains from stocks. If you want to try your luck, you better go to Las Vegas. In the stock exchange you should expect only reasonably good returns. Invest, don’t gamble.
210. All Investments Carry Risk
All investments carry some risk. You can not eliminate risk, but you can reduce it. While traveling you carry the risk of having an accident and you reduce it by following traffic rules. In investing too, you can minimize the financial risk by following rules of investing. Be disciplined.
211. Practice the CAN SLIM Stock Picking Strategy
CAN SLIM is a philosophy of screening, purchasing, and selling equity shares, which was formed by William O’Neil, the co-founder of Investor’s Business Daily. This is a very attractive stock picking strategy. CAN SLIM takes into consideration both the tangible and intangible factors that affect a company. This strategy has been tested in the past on several companies and has a history of providing great results.
212. Invest In Companies With Quarterly Earnings Growth
It is essential to pick stocks whose EPS of the latest quarter is at least 25% higher than EPS of same quarter of last year. You can find many companies that have displayed impressive growth rate of more than 50%. Pick up companies with quarterly earnings growth.
213. Check The Quality Of Earnings Growth
The earnings growth must be supported by earnings quality. The strategy recommends that investors should verify the quality of the earnings. Companies can influence and control the earnings by ambiguous methods. The figure may be inflated by the company to show a better picture. Investors need to research for these ambiguities.
214. Look For Companies With A 25% Annual Earnings Growth
One simple criteria to short list a good company is to search for company with a 25% annual earnings growth. It is a very good indicator of a company’s performance and profitability. Consistent high earnings growth is the #1 indicator of a stock’s potential to make big gains.
215. New Stock Price Peaks Is Usually A Positive Signal
Investors generally do not like to invest further in a company that has just reached a new high, they believe that the stock will not rise any further and may see a downward trend. That’s the common mindset. But big company grows like this. A stock’s new price high rises further, suggesting an upward trend. It is not too late to buy. New price highs offer new opportunities.
216. Transformation Is Key To A Company's Success
Most of the big companies have reached to their present level through transformation.
This change may be due to new management, new products or markets or a new environment. Analyze changes and pick stocks that have recently seen some positive changes. McDonald’s grew more than 1100% in 4 years after introducing the new franchise system.
217. Compare A Company's Earnings With Its Peers
Analyze companies’ earnings for last 5 years and compare them with other companies in the sector. This will give you a good idea about the company’s performance and position. Look for the best earnings performance now, not just a promise of future earnings.
218. Innovation Can Turn Around A Company
History is full of examples how an innovation changes companies’ fortune. Apple is one of the best examples which shows that innovation may make wonders for a company. With the introduction of innovative products like the iPod and the iPhone, Jobs turned around a loss-making company and brought it to new heights within a decade.
219. Don't Sell A Stock At A New Peak
When a stock reaches a new peak, investors want to book profits. They believe that the stock will not rise any further and may see a downward trend and this is the opportunity to make profits. But a stock’s new price high suggests the company’s strength. Stocks of fundamentally strong companies making new highs are likely to climb further. Let your investment grow.
220. Read Price Movement Trend Signal by Change in Daily Trading Volume While Price is Rising
Price increase accompanied by increases in volume, indicates there is more demand for shares. This shows people are buying in. The price may rise further. On the other hand, price increase but with decrease in volume indicates the demand is diminishing for shares. The price may not rise further.
221. Understand Signal by Change in Daily Trading Volume While Price Declines
Stock price decrease accompanied by increases in volume indicates there is higher selling pressure. This shows people are selling their holdings. The price may decrease further. On the other hand, if the price declines but with decrease in volume, it indicates there’s no significant selling pressure. The price may not decline further.
222. Stocks Follow The Laws Of Supply And Demand
The movements of the stock markets are based on the Supply & Demand of shares. The share price of a company with a lower number of outstanding shares will move easily compared to a company with a larger number of outstanding shares. O’Neil’s research shows that more than 95% of companies that have shown huge gains in share price have fewer outstanding shares. You can selectively invest in good small companies.
223. Which To Choose - Laggard Or Leader?
Differentiate between the leaders and laggards of the stock market. There may be the same kind companies in an industry with similar products and business lines. Stocks should not be picked just because their price is cheap, they could be cheap because they are laggards. Good stocks come with a high price but also give high returns. Choose leaders and discard laggards to win.
224. Choose The Best Companies
Choose the best companies that have solid fundamentals such as earnings growth and profit margins and that are known for innovation and good corporate governance. You are thus building a strong portfolio with high quality stocks.
225. Don't Invest in Bitcoin
Bitcoin, a digital currency, has appreciated very fast. Bitcoin is used as virtual currency for electronic purchases and transfers. Though growing in popularity and value, it is opaque. Its future is uncertain. The currency is not backed by any country’s central bank or government. It is risky to invest. You can even invest in Bitcoin stock, but we don't recommend it.
226. Use Carry Trades In The Currency Market
You can make profits by borrowing in low-yielding currencies like the dollar and euro and investing in high-yielding debt in emerging markets. Borrow in one country with low interest rates and use this fund to purchase higher-yielding assets in another country that has high interest rates.
227. Learn To Read Charts
Today you’ll find companies reports and analyst reports are full of graphs and charts. The visual display of data is ideal for comparison. You don’t need to be a statistician or an expert to understand and interpret charts to draw meaningful information. Learn some simple graphs such as the line graph, bar chart and pie chart.
Here are some free stock charts to get started.
228. Compare the Effective Annual Rate on Bank Deposits
Interest rates are generally quoted as annual interest rates. Some banks compound or pay interest on a monthly, quarterly or half-yearly basis. If you take into consideration the effect of periodicity, the effective annual rate works higher than the quoted annual interest rate. While investing, compare the effective annual rate on bank deposits.
229. Every Mutual Fund Is Different
Stocks of two companies behave in different ways. Similarly, two mutual funds’ behavior are not alike. Their investing strategies are different. Their fund managers produce drastically different results. Every mutual fund is different. Do your homework to pick the best fund.
230. Hedge Funds Are Not For Common Investors
Hedge funds, like mutual funds and Private Equity funds, pool cash from investors. But they focus on alternative investment strategies which are generally aggressive and riskier in nature. They may generate higher profits but are not suitable for common investors.
231. Record The Reason For Buying A Stock
Whenever you purchase a stock, record reasons for making a buy. This will bring discipline and you will start following your own set of rules. In the future, you can analyze your earlier decisions and find your mistakes and learn from them. Similarly, you will learn from your correct decisions. You can use the same logic to make profit in future.
232. Record The Reason For Selling A Stock
Warren Buffett says hold a stock longer, may be even forever. But if you want to sell, record reasons for selling a stock. This will force you to rethink before you decide. It will also create a history sheet to look back on for future reference.
233. Learn From Your Profits And Your Losses
Periodically review your previous transactions. See what went right and what went wrong.
Remember all decisions need not be correct to be a successful investor. Work hard and learn lessons. This will improve your success rate.
234. Manage Your Ego And Emotions When Investing
Behavior Finance says ego and emotion are the greatest enemy in the stock exchange. Losses are always painful. But admit mistakes and accept your losses. This will reduce your further losses. Prompt corrective action is required. This is truer in trading, especially in the derivative market. Time is money.
235. Focus On A Company's Cash Flow
Cash Flow statements reflect more realistic figures of a company’s financial performance. Read and analyze them. There are other financial statements such as the Income Statement, the Balance Sheet, and the Management Discussion and Analysis. These, however, are more prone to manipulation by the company’s management. They may be misleading. It’s not possible to manipulate cash figures as that can be verified easily from banks by the Auditors. Therefore, you should focus on a company’s cashflow.
236. Learn From Other Investors' Mistakes
There are ample examples of unsuccessful investors. Read their case studies and find out common mistakes and strategic errors committed by them. Learn from other investors’ mistakes and avoid making such mistakes.
237. Apply What You Learn
One common shortcoming among investors is that they know investing rules but ignore them while investing. It’s like knowing traffic rules but not following while traveling. Use your learning to be a successful investor.
238. Don't Be An Over-Confident Investor
In the market one person sells and another person buys. Both think that they are smarter. Do not try to prove you are smarter than the market. You are in the market to earn some reasonable returns, not to show your strength by beating the market.
239. Pick A Mutual Fund And Stick With It
Select a good equity fund. It can be a diversified value or growth fund. Pick it and invest. Don’t sell. Let it grow with time and watch the magic of compounding. The S&P 500 increased tenfold from 170 to 1700 in last 30 years. Historically, a good diversified equity fund quadruples every 10 to 15 years.
240. Which Fund Should You Choose?
You will find different types of funds such as an equity fund, bond fund, income fund, balanced fund, sector fund and so on. Within each category there ate sub categories and the list goes on. You have about 10,000 Mutual Funds and ETFs, making your task of selection even more challenging. Go for an S&P 500 index Fund from any reputed fund house and expect over 12% annual return on the long run.
241. Understand The Global Markets Before You Invest
When you can earn a good return in the US stock exchange, why invest in foreign stocks?
You can understand US companies better. You will need extra time to understand foreign markets. Your investment abroad will be subject to political and economic uncertainties especially due to changes in government policies. New investors shouldn’t invest in the global market.
242. Scan And Filter Information
You have different sources of information such as newspapers, magazines, research reports, company’s annual reports, television channels, internet and social media. You have a wide access to a vast pool of information. Here is a word of caution. Many sources carry biased, false and misleading information. Scan and filter information.
243. Trading In Futures Can Be Gambling
Trading in futures is like trading in stocks. If you want to invest or trade in the stock exchange or derivative market, you need to develop an understanding of the market. Trading in futures is not gambling and your outcome does not depend on your luck. Always follow basic rules and strategies, as derivatives are risky.
244. Use The Index Future To Hedge Your Portfolio
You can buy and sell stock index futures such as the S&P 500 Index Future which is based on the performance of the S&P 500 Index. You can use it to hedge your portfolio against market risk. You can settle the future by cash payment. The expense is similar to the insurance premium you pay to protect your other assets.
245. Use Derivatives For Hedging
If you are a producer or consumer of any commodity, you can buy or sell derivatives to hedge against fluctuations in the movement of underlying commodity prices. You can use options, futures or swap agreements to minimize uncertainties in your business.
246. Don't Use Derivatives For Speculation
Some professionals and traders do speculate and trade in derivatives to capture gains that come from price fluctuations in the underlying asset. With leverage the outcome, profit or loss can be significantly high. Warren Buffet, great investor, has repeatedly warned against derivatives as a financial weapon of mass destruction.
247. Derivative Trading Is Not Investing
Trading in options and future is quite different from investing. Their objectives and strategies are different. Derivative trading has a high risk and reward profile. If you are a new investor or you want to be a long-term investor and not a trader, derivatives are not for you.
248. Don't Mix Investing With Derivative Trading
If you want to do both investing and trading, keep the capital separate. Use a specified capital in derivative market, the loss for which you can bear. Always remember derivative trading is highly leveraged and your entire capital can be wiped out. Of course, here you can make substantial gains too.
249. Learn Futures Trading Tools Before Getting Started
Derivative trading is very specialized. Initially it was the domain of professional and experienced persons only. But you can also learn practical tools to make profits in the Future Markets. Start by learning technical analysis. Study how to understand charts and to estimate the future price in the short term. Learn some common techniques to minimize risk.
250. Use Stop-Loss Orders In Options Trading
One way to minimize your risk is to place stop-loss orders after you initiate a position. Don’t cancel the stop-loss order. Keep discipline, close the position and accept the loss. It will automatically limit your downside.
251. Choose The American Option Over The European Option
American Options are considered more liquid. Thus, the American Option can be exercised at any time during its life. On the other hand, a European Option can only be exercised at maturity. Though European options generally trade at a discount to its comparable American option, choose the American Option that gives you flexibility.
252. Use the Collar Strategy for Protection in the Derivative Market
If you decide to operate in a derivative market, use the collar strategy to limit your loss. (This does limit your gains also.) If you are holding some number of shares of a company, write a call option and purchase a put option for equal number of shares of the company with the same expiry date.
253. Don't Write Call Options
Uncovered calls are very risky. As a call writer, the profit you can earn is limited to the premium amount received but the loss you can face is unlimited. If you do not own the underlying asset and the market turns, you may lose huge money. You will have to fulfill your commitment of delivery by purchasing the asset at a high price.
254. Don't Write Put Options
As a put writer, the profit you can earn is limited to the put premium amount received but the loss you can face is unlimited. If the market turns opposite of your expectation, you will incur a huge loss. You will have to fulfill this commitment of delivery by selling the asset at a low price.
255. Avoid the Naked Option in the Derivative Market
The Naked Option is an uncovered option and there is no cover to protect you if the market goes against your expectation. If you sell a Naked Call or Put Option, you should have underlying assets or an open position in the futures market to protect you from an unlimited loss arising out of adverse price movements. Always cover your risk when entering into a derivative market.
256. If You Buy Futures Buy Put Options for Protection
If you believe that a stock is likely to move up, you can buy futures by agreeing to buy a specified quantity of the shares on a particular date at a fixed price. You will earn if the market goes up. But if the market turns opposite of your expectation, you will incur a huge loss. You should limit your loss by buying put options also for the same shares.
257. If you Sell Futures Short Buy Call Options for Protection
If you believe that a stock is likely to go down, you can sell futures through contract to sell a specified quantity of the shares on a particular date at a fixed price. You will earn if the market declines. But if the market turns opposite of your expectations, you will incur a huge loss. You should limit your loss by selling put options also for the same shares.
258. If the Market is Likely to Move Wide in Either Direction, Buy a Put and a Call Option
Outcome of a forthcoming event, such as a presidential election or the FED’s announcement, affects the market. But you are not sure in which direction it will move. You simultaneously purchase both a call and a put option with the same underlying asset, strike price and expiration date. You will make a profit depending on the quantum of the price movement. But if there is no or negligible price movement, your loss will be limited to the premium paid.
259. Sell Only Covered Call Options to Limit Your Risk
If you own shares, you can sell call options to earn money. Your risk is covered. If the market goes up and the buyer exercises the call option, you can deliver the shares. Here you need not to purchase the shares at high price to fulfill your commitment of delivery.
260. Buy a Call Option Instead of Going Long
If you believe that a stock is likely to move up, you can buy futures or call options. You will earn if the market goes up. But if the market turns opposite of your expectation, you will incur a huge loss in the case of futures. Your loss in call options is limited to the premium paid.
261. Buy a Put Option Instead of Going Short
If you believe that a stock is likely to decline, you can short sell futures or buy a put option. You will earn if the market declines. But if the market turns opposite of your expectation, you will incur a huge loss in the case of futures. Your loss in the put option is limited to the premium paid.
262. Long Straddle Strategies May Pay in Volatile Markets
In the Long Straddle option strategy, you simultaneously purchase both a long call and a long put of the same underlying security. The strike price and expiration date for both purchases should also match. You will make a profit from the price movement. The amount of profit depends on the quantum of price variation and the purchase premium paid. But if there is no or negligible price movement, your loss will be limited to the premium paid.
263. Short Straddle is a Risky Strategy
In a short straddle option strategy, you simultaneously sell both a put and a call of the same underlying security. The strike price and expiration date for both purchases should also match. If the price does not move or moves only marginally, you earn. The profit is limited to the premiums of the put and call, but the potential losses are virtually unlimited depending on price variation in any direction.
264. List Your Financial Goals
Think of your financial needs. Your financial goals could be to have adequate money to finance your children’s education, to own a house, a car, make a decent living for your family, have a comfortable living after retirement, be able to cover medical emergencies and so on. List them out with an estimate of how much money you would need and when you would need it. You can then determine if you need to invest your money to reach those goals as well as determine the best path to do so!
265. Make A Budget
Prepare your monthly and yearly expenditure budget. List all routine expenses such as groceries, electricity, gas, gasoline, education fees, rent, mortgage, and shopping. Compare the actual with the previous estimates and try to bring perfection in your estimate. Knowing how much money you have to work with will help you formulate a plan to reach your financial goals.
266. Start Saving Today
You have to start saving today.
Develop a regular savings habit. Avoid all unnecessary wastages of money. Savings is necessary if you want to build up your portfolio and achieve your financial goals. There’s no other way around it.
267. Put Your Bills on Auto-Pay
Pay your bills on time to avoid any penalties. Remember a dollar saved on a penalty is the same as an extra dollar earned. You can link your bills with your bank accounts and use an automatic payment. This reduces the chances of default and you won’t have to remember due dates.
268. Pay Your Credit Cards On Time
The efficient use of credit cards brings financial benefits by the way of interest free credit for around one month. This enables you to make a better financial plan. But if you default, it puts a hole in your pocket. You’ll pay interest as high as 36% per annum! If you cannot use discipline, it is better to use a Debit Card than a Credit Card.
269. Convert Your Savings To Investments
Initially you may keep your savings in a savings account with a bank. Please be certain that your bank is providing you with a competitive interest rate. But remember, interest in a savings account is very low. Make your money work harder and earn for you. Invest your savings in financial products and assets which provide better return. Prudent investing is necessary to achieve your financial goals.
270. Know the Difference Between Tax Driven and Tax Advantaged Investments
Your objective should be to maximize your post-tax return on your investments and not just to save on taxes. If you earn more on good investments and pay more tax, it is acceptable as long as the net return is higher. It is always advisable to do some calculations and homework before you invest in tax advantaged investments.
271. Look for Companies That Buy Back Their Shares at a Discount
Warren Buffett prefers a company that repurchases its shares when they are available at a significant discount from the intrinsic value. This enhances a company’s per-share intrinsic value further. Invest in such companies for long term growth.
272. Focus On A Company's Core Competencies
Buy a company that is regularly improving its basic earning power through organic growth and further increasing their earnings through acquisitions in its core areas. Avoid a company which is diversifying in different areas especially through small or large acquisitions.
273. Review Your Investments With A Negative Carry
A negative carry is a situation in which an investment has a lower yield than the cost of funding for it. You get a negative return by carrying it. You lose money. Review your portfolio and discard investments with negative carry except when needed for a specific purpose.
274. Speculation Doesn't Equal Sustained Growth
You can make short term gains through speculating stocks. You may earn handsome amounts in a few transactions, but you will be guided by emotions to reinvest more.
Ultimately you will be a net loser.
275. Focus On The Future Earnings Of A Company
A long-rising market may induce you to purchase based on anticipated price behavior. You may be guided by emotions to avail the opportunity and make profits. But remember Warren Buffet’s warning, “The fact that a given asset has appreciated in the recent past is never a reason to buy it.”
276. Think Of Buying A Stock Like Buying A Business
Analyze investing the way you would if you were buying the entire businesses. Buy the stock only if you can make a reasonable estimate of its earnings range for at least the next five years, and only if that meets your investment goals. Otherwise leave it.
277. Focus More on Microeconomics Than Macroeconomics
When analyzing an investment proposal, focus more on microeconomics than macroeconomics. Warren Buffett says he has never foregone an attractive purchase because of the macro or political environment, or the views of other people.
278. Stay Inside Your Circle Of Competence
Before you buy, you should analyze the company’s working. This requires an understanding of its business and the way it works. Buy a company which is within your circle of competence. Otherwise look for some other stocks.
279. Understand A Company's Business Prospects Before Investing
Do your homework and research before buying a company. Study business prospects of potential companies. This requires specific knowledge about businesses and skills to predict their future earning power. If you don’t have that understanding, the stock is not for you.
280. Know When You Should Start Investing
Start today. But don’t invest in bulk. Invest small amounts every month regularly and accumulate shares over a long period of time. Do not wait for great excitement time to open your account. A bull market is not a suitable place to start your journey.
281. When Should You Sell?
Never. Don’t sell when the market is in a bear phase. You should never sell when any bad news has pulled down stocks. These are momentum reactions. Wait. You should sell in a planned way but only if you need money for a better investment opportunity.
282. Keep Commission Costs Low
The overhead cost of trading eats a significant portion of your earnings. You may be shocked when you add up and see the commissions you’ve paid at the end of a year. Be selective in choosing a broker and advisor. Avoid frequent churning of your portfolio. A successful investor keeps his costs minimal.
283. Don't Try To Ride A Bull Market
Bulls push the market away from the fundamentals. The market starts factoring in all positive news, without verifying the authenticity. The market cannot sustain at those levels. Only the fundamentals will determine prices in the long run. A euphoric market is temporary.
284. Don't Let Gossip Distract You
When indices start moving up significantly, the market is full of gossip and hearsay. You will hear success stories from your neighbors who are minting money from the rising market. Don’t let the noise distract you. Always remember you are a long-term investor and not a day trader. Let the dust and excitement settle.
285. Avoid Mortgage Backed Securities
Mortgage backed securities are based on cash flows generated from a pool of mortgage loans, mostly residential properties. These mortgage loans are purchased from banks and pooled by institutions and issued as securities. As you cannot be sure of the real value of the mortgaged properties, it is not a safe investment. The subprime crisis can come back.
286. Don't Sell In A Bear Market
Bears pull the market down far below the fundamentals. The market starts believing negative news, without even verifying the authenticity. Don’t sell your shares in a bear market. The bear market is temporary as only fundamentals determine prices in the long run. Historically, growth follows every recession whether it is the Great depression of the 1930s or the recession of 2008.
287. Treat A Bear Market Like A Friend
A falling market provides you the opportunity to convert your cash into shares. A climate of fear pulls down the price of even top-rated shares. This is the time to invest in good stocks at a discount of their true value. But don’t go for cheap stocks. Always differentiate between valuable stock and cheap stock.
288. You Don't Need To Be A Pro To Invest
Great Investors such as Warren Buffet and Ben Graham agree, “To achieve satisfactory investment results is easier than many people think”. And you don’t have to be an expert to attain satisfactory investment returns.” If you are a non-professional, just be aware of your boundaries. Keep your investments simple and invest for the long term in simple products like a low-cost S&P 500 index fund.
289. Stay Updated On Financial Events
Keep track of financial and economic events happening around you. There are so many sources of information such as TV channels, Newspapers, websites, ads, analysts’ reports and advisors’ tips. Listen to them but do so with caution. Many carry biased views. You must scan, filter and verify before you believe them.
290. Manage Your Own Money
It is your hard-earned money. Spend time managing it. Invest properly and let your money earn for you. If someone else with high integrity and ability is managing your portfolio, keep the decision making with yourself besides the periodic monitoring.
291. How To Select A Stock Broker
Brokers don’t lose money when your portfolio suffers a loss; you’re the only one who does. You should take extreme care when selecting a broker. A background check into their abilities, past performance and integrity is necessary. Also see the fee structure, the services offered and always compare. Never mind paying a broker more rather than incurring losses on your investments.
292. Don't Be A Day Trader
Day trading, also known as ‘Intraday’ trading, requires your full-time involvement. Positions are generally taken in the stock and exited within the same trading day. Traders in general are interested in faster, lesser money and making dozens of trades per day. If you are an investor, day trading is not for you.
293. Invest In Companies With Consistent Dividends
This strategy focuses on companies that can maintain good dividend yields. Dividend yield is a measure of the actual return that the investor receives for his investment. The dividend policy should always be clear, consistent and rational. Invest in companies that pay consistent dividends with increasing trend and that also at times repurchase shares at an appropriate price.
One company that helps with this is Emperor Investments.
294. Keep A Positive Outlook
Do not be a pessimist on global growth because of short-term worries. The World Economic Outlook reports a major impulse to global growth has come from the United States. Global growth will further pick up to a 4% pace in the next two years. This means companies’ business, and hence stocks, will grow with time.
295. Stay In The Market
Don’t be in and out of the market based on the predictions of the so-called market pundits.
Last Century, the DJIA index moved from two digits to five digits crossing 11000, in addition to paying a rising stream of dividends. There is no reason to disbelieve its journey forward this century.
296. Invest in Assets That Enhance Your Wealth
Critically examine all investment proposals. A bad investment with negative net present value will destroy your wealth. Select an investment only if it has positive net present value. These enhance your wealth.
297. Analyze Fixed Income Securities
Investments in bank deposits, money-market funds, bonds, mortgages, and other such instruments are considered comparatively safe. But these instruments destroy your purchasing power, even as you continue to receive timely payments of interest and principal. Compare net present value of the returns after adjusting for inflation and tax. Invest only if it gives you positive net present value.
298. Monitor The Economic Calendar
The Economic Calendar contains the due dates of major scheduled events, releases that can affect the market, such as unemployment or housing data, trade, growth and inflation data releases, and central bank periodical reviews. Pay attention to such announcements because they may affect the direction of the market. Keep track of events that might move the market and plan your strategies in advance.
299. Say No To Quick Profit Proposals
In the financial markets, there is no shortage of fraudulent operators who will promise you unbelievable profits. They will emotionally black mail you and you may fall in their trap. Say no to them at the beginning. Safety of your capital is more important than a quick buck.
300. Look For Companies With Management Ownership
Management owning a higher percentage of shareholding is an indication of the management’s faith in the company’s performance and future growth. Walter Schloss, known as a super investor, recommends investing companies if their management owns large proportion of the stocks. Such companies have proved to be good stocks to buy.
301. Look For Companies With Consistent Performance
Graham suggests buying a company only if its performance has remained satisfactory during the last 10 years on three criteria. First, it has demonstrated earnings stability by positive earnings each year. Second, it has an uninterrupted dividend record. Third, it has earnings growth resulting in at least one-third raise in EPS in the past 10 years.
302. Stick To Your Investment Plan
During extreme periods for the market, you may be tempted to modify your set principles to book profits or to reduce further loss. Investing principles are the guiding principles valid for both good and bad markets. If you deviate, you reduce your ability to build long-term wealth.
303. Understand Lump Sum Investing
Stagger your investments over a period of time. Select the securities and adopt a systematic investment plan putting small amounts in the same securities every month. You get the benefits of “Dollar Cost Averaging” and you accumulate securities at a lower average cost per share. You don’t have to wait for market timings.
Learn more about lump sum versus dollar cost averaging investing here.
304. Never Lose Patience
Market corrections, Ups and Downs, Business Cycle and Financial Crisis are different phases of businesses and stock markets. These are the situations where your patience and emotions are put to the test. If you don’t have patience, you may run away from the market. Stand your ground firmly for long term gains.
305. Disregard Short Term Market Predictions
Warren Buffett believes no one can predict short-term market movements. It is a common mistake to make short term profits from such predictions. But ultimately it leads to speculations and losses due to frequent buying and selling.
306. Defer Taxes Using A 1031 Exchange
If you sell a business or investment property, you can defer tax on the gain by reinvesting the proceeds in a similar property within six months. But within 45 days you have to firm up the property you want to buy. You have to keep the amount in an escrow account till the swap happens. Remember the tax on capital is only deferred. It is not tax-free.
307. Don't Put More Than $250k Into A Single Bank Account
Your money with the bank gets insured. The Federal Deposit Insurance Corporation (FDIC) provides insurance coverage but there is a catch. This is limited to $250,000 per depositor, per insured bank. This includes all accounts such as deposit checking and savings accounts. Your limit gets enhanced if you keep in more than one bank.
308. Don't Take Out A Mortgage For The Tax Deduction
Tax deductions may tempt you to borrow more than you can afford. Even after availing the tax deduction, your net cash outflow will be high. Moreover, the mortgage is generally for a long such as 20-25 years. Your repayment commitment may upset your budget especially if your future earnings are uncertain.
309. Protect Your Investment
Acts and regulatory authorities are there to ensure that investors are adequately informed and their interests are protected. However, it is important for you to understand that although they seek to regulate the activities of securities markets, this does not guarantee the safety of your investments. Crosscheck integrity and reputation of the persons or institutions with whom you are dealing.
310. Stay Away From "Guaranteed High Returns"
Always remember the fundamental theory of high risk-high reward. High returns come only with high risk. You should not expect a sustained return much in excess of what you can get with risk free T-bills. Ignore products with guaranteed high returns.
311. Limit Investments In Your Employer's Stock
If you have Employee stock purchase plans, it is a good idea to buy stock on a regular basis and let it accumulate. But it would be against basic investing principles to allow these holdings to take a disproportionate amount. You may periodically book profits by selling some shares to keep it below 5-10% of your total portfolio.
312. Keep Your 401k Diversified
Many employers use their 401(k) plans as a means of distributing company stock to employees. But remember Enron. More than half of Enron employees’ assets in the company’s 401 (k) plan were in Enron stock and was almost lost in 2001. Keep a diversified portfolio in your 401(k) plan.
313. Buy Floating Rate Corporate Bonds
Good companies’ bonds may give you good return. But inflation erodes the purchasing power of your money invested in bonds. Some bonds are linked with LIBOR. Historically London Interbank Offered Rates are highly correlated with inflation. Hence go for floating-rate corporate bonds only.
314. Save For Retirement In Your 401k
If you are an employee, you can make an annual contribution up to $18,500 to a 401(k) plan. Employees of age 50 or older can also make additional catch-up contributions of up to $5,500. The employers generally match your contributions fully or partially. Use this!
315. Be An Investor, Not A Speculator
A speculator bets on stocks for rapid gains. Sometimes he wins, and sometimes he loses. An investor buys and holds high-quality stocks for the long term and aims at value appreciation for the long run. He is not concerned with short term loss or gain.
316. Invest During Crisis Events
After any major crisis, there is pessimism everywhere. It looks like the world has come to an end. The best time to buy is the time of maximum pessimism. Take advantages of all major crisis events such as Black Monday 1987 Crash, 9/11, and the Financial Crisis 2008-2009.
317. The Long Term Outlook Is Bullish
Last century the Dow Jones Industrial Average has increased from 68 to 11,500. According to Sir John Templeton, a great contrarian investor, the DJIA will probably cross one million. Keep on buying quality stocks whenever available at bargain price.
318. Plan For A Successful Retirement
First estimate your financial needs based on your desired lifestyle post retirement. Add specific requirements and cushion for emergencies. Start saving and investing early to achieve your retirement goals. Also take advantage of any employer matching plan, IRA, Roth IRA and other social security schemes.
319. Gradually Increase Stock Investment After Retirement
This contrarian theory is the outcome of latest research. Conservative investments such as bonds, fixed deposits look safe but erode your purchasing power due to inflation. Protect your reserve from depleting during your lifetime. Start with a 20%-30% portfolio in stocks at retirement and gradually increase this allocation to 50%-60% in the next 30 years. Select only good quality growth or defensive stocks.
320. Understand The Time Value Of Money
The Time Value of Money is a basic concept in savings and investing. The central idea behind time value of money is that a dollar earns and grows with time and so a dollar now is worth more than a dollar in the future. Don’t keep money idle. Invest it.
321. Avoid Highly Leveraged Companies
Funds to a company are provided by either shareholders or lenders. Excessive dependence on borrowings is risky. Long term financial soundness of a firm depends on its ability to repay principal and interest on borrowings even during bad times. Look at the long-term solvency of a firm, which can be judged by using leverage or capital structure ratios such as Debt Equity Ratio and Debt Assets Ratio. Long term solvency is important for all bondholders, long term lenders and shareholders.
322. Verify A Company's Ability To Service Its Debt
A firm is required to repay principal and interest on debts out of its earnings from operations. Confirm that the company does not raise additional loans to meet its commitments on previous borrowings. Look at the coverage ratios such as Interest coverage ratio and Debt Service Coverage Ratio which indicate the adequacy of proceeds from the operations of the firm and the claims of outsiders.
323. Understand The Significance Of Financial Ratios
The financial statements of a company contain a lot of data. To extract the information from the financial statements, a number of ratios are used to analyze such statements. You don’t need to know how they are calculated. The ratios are worked out by analysts and are freely available in the public domain. Familiarization with basic of financial ratios will enable you to understand the company better.
324. Compare Financial Ratios
Financial ratios are freely available in the public domain. Use financial ratios to screen stocks. Compare the recent ratios to both the historical levels of the company along with peer companies and industry averages. Analyze them to draw meaningful inference about the company’s performance and likely trend in the future.
325. Look For Companies With High Activity Ratios
Activity ratios demonstrate how efficiently a company uses each dollar invested in it. How fast does the company turn its assets into revenue and convert its revenue into cash? How effectively does a company deploy its assets to generate earnings? Look for a company with high activity ratios such as fixed asset turnover ratio and total assets turnover ratio.
326. Insure Your Assets
Insurance cost is an expense, but it is comparatively small compared to the potential loss you will have to sustain from any catastrophe. Insurance coverage is available for either book value or replacement value. Take coverage for replacement, as you will have to purchase at the current price and not at the historical price. Get insurance renewed every year and also include any assets acquired during the year.
327. Understand Insurance Deductibles
Insurance companies provide discounts on your premium depending on your deductible. If any small loss or damage happens, you may be able sustain it. You do not need insurance coverage for this and you do not have to file a claim. Fix the maximum deductible amount based on your loss bearing capacity.
328. Make Sure You Have Proper Medical Insurance
Verify the Medicare facilities available through the Government or your employer. If it is not available or the coverage is inadequate, you must have medical insurance coverage for yourself and family. Unforeseen medical expenses may derail your financial plans. You should take a medical insurance plan that covers all major medical insurances such as hospitalization, medical tests, physician fees and medicines.
A great place to get a quote is Policy Genius.
329. Ensure You Have Adequate Life Insurance
Insurance policies provide financial protection to your family in the event of unfortunate demise. Take a policy for an adequate amount which could at least meet the minimum needs of your family. Add additional coverage for accidents by paying a small additional premium.
A great place to find coverage at an affordable price is Haven Life.
330. Cover Your Debts With Term Life Insurance
If you have a mortgage or debt for a home, car or other loans, buy term-life insurance for the entire amount of your debt. Take term insurance for the period matching the loan duration and also for reducing balances based on the EMI or monthly payments.
331. Don't Mix Insurance With Investing
The objectives of insurance and investing are different. Do not combine them and don’t purchase hybrid products. For insurance, you need to cover risk only. Term insurance is a pure risk cover. It covers risk for a higher value at a small premium. Investing should be evaluated and kept separately. Many insurance products are mis-sold.
332. Look For Group Insurance Plans
Join Group Insurance Plans offered by your employer or others. You get a higher coverage at a lower cost. These plans are based on benefits of pooling. It is convenient to join and also to get claims settled without much paperwork.
333. Choose A Good Insurer
As you pay insurance premiums upfront year after year, it is natural for you to hope that insurance companies will expeditiously pay your claims as they arise. But that’s not always the case. You should be careful while taking any insurance policy. Look for reputation, past records of claim settlements and financial soundness of insurance companies.
334. Get Help If An Insurance Company Denies Your Claim
If your claim is rejected by an insurance company, ask for reasons in writing. If any further documents are required, furnish them. If it is not settled, you may take it up with regulatory authorities. There are some NGOS that provide help. Contact them.
335. Invest For Income
Income investing is a stock picking strategy based on investing on regular and good dividend paying stocks. Look for the large companies that earn good profits and distribute a major portion of their profits via dividends to their shareholders.
336. Invest In Companies With Annual Earnings Above 12%
Invest in large companies that are compounding their earnings above 12%. These firms provide protection in bad markets. Over the long-run performance of both companies and share prices generally revert to the mean.
337. You Don't Have To Be A Genius To Be Successful
You don’t need to be a genius to be a successful investor. Buffett says you need a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework. If you follow simple rules and keep emotions away, you can achieve satisfactory investing results. Extraordinary results would need additional efforts.
338. Find Large Companies That Pay Regular Dividends
Large and mature companies generally don’t reinvest a significant part of their earnings. They don’t have a plan for fast growth and are not expected to grow faster than the economy’s GDP. These companies prefer to distribute a large part of their earnings to shareholders by the way of regular dividend payments.
339. Search For Small Fast Growing Companies
Search for small but fast-growing companies. Prefer the companies with annual earnings growth at above 20%. Peter preferred these companies in sectors that are not fast moving. These companies give bigger gains but carry risk.
340. Stocks Insure Against Inflation
Inflation erodes the value of money. Your portfolio will shrink if not invested properly. You should minimize this risk by investing in DJIA or any blue-chip companies. An all-bond holding strategy is not a good option.
341. Avoid Short Selling
Graham ruled out short selling as an investment strategy. In short selling, you sell the stocks you own with the intention to repurchase them when the price declines. The objective is to make profits through trading. But in the long run it does not give a satisfactory return.
342. Look Beyond Last Quarters Results
The market reacts instantaneously on good results or any exciting news about a company. It factors this and the stock price increases. When this happens, you will be paying a higher price which may not be sustained. Graham does not recommend buying companies which have just reported, or are likely to report, superior results.
343. Focus On A Company's Assets
Walter Schloss, known as a super investor, tells us to focus on assets and not on projected earnings. Buy stocks at or below their book value. Peter Lynch also suggests buying companies with assets that outweigh their market capitalization.
344. Stocks of Cyclical Industries Have Long Holding Periods
Cyclical industries such as steel, cement and aluminum depend on global prices. The holding period for such stocks is longer for reasonable gain. It is difficult to time when the cycle will turn. Invest only if you intend to wait.
345. Plan For A 4-5 Year Holding Period
Walter Schloss, a well-known super investor, advises that a holding period should range between four to five years as depressed stocks can take time to turn around. It is always better to think long term. Thinking long term usually results into a low turnover of a portfolio. You save on transaction costs also.
346. Invest In Companies With Low Debt
Invest in companies with low debt. Debt increases the risk profile of the investment. Walter Schloss advises to avoid companies with high debt. Graham also advises buying companies with Total Debt to Current Asset ratios of less than 1.10.
347. Use Joel Greenblatt’s Magic Formula
Use investing filters from Joel Greenblatt’s Little Book That Beats the Market. His Magic Formula Investing filters on high earnings yields and also high return on capital. He advises to exclude utility, financial and foreign stocks. His recommended holding period is 3 to 5 years.
348. Learn John Nelff’s Investing Strategy
John Nelff, known as the professional’s professional, is considered a core contrarian investor and a low price-earning investor. His investing strategy is to pick good companies paying high dividends with moderate growth but are out of the market’s favor and available cheap. He recommends selling once fair value is reached.
349. Learn John Nelff's Selling Strategy
You should have a firm selling strategy to avoid losing profits. Book profit when it reaches your pre-decided level. Sell the stocks if the company’s fundamentals deteriorate. Cut your loss of profits if earnings estimate and average growth rates decline.
350. Buy On Bad News
The Market tends to react sharply on bad news. This gives you an opportunity to buy a good company at a cheap price. When the dust subsides, the stock again picks up. Buy such stocks and retain them until their real value is recognized by the market.
351. Both Bear And Bull Markets Are Temporary
Historically, markets move to the extremes. But these movements have always been temporary. Both phases provide you opportunities to gain. Bear markets provide the opportunity for buying good companies at a discount. Buy in a bear market and sell in a bull market. This requires courage to venture, while keeping emotions under control.
352. Invest In Companies With Growing Free Cash Flow
A company’s sales growth generates more free cash flows. This enables the company to pay more dividends, reinvest profitably or to buy back stocks. The shareholders gain in all these alternative deployments in the long run. Buy a company with growing Free Cash Flows for each of the past 3 fiscal years.
353. Use Time Tested Investment Strategies
Outstanding investors made their fortunes in stocks. Great icons such as Graham, Fisher, Buffet, Templeton and Lynch have formulated time-tested strategies and exceeded market performance by consistently following them. You can follow any of these great investors and apply the strategies and philosophies honestly to be a successful investor.
354. Apply Fishers 15 Factors
Fisher provided a checklist of 15 factors in his book “Common Stocks and Uncommon Profits”. A company must qualify on most of these 15 points to be considered a worthwhile investment. Use the checklist to find a well-managed company with growth prospects.
355. Invest In Companies With High Ratings
The S&P rates stocks from A+ to D on their earnings growth and stability over the past 10 years. A+ stocks perform well, especially in bear markets. With these stocks you continue to get income by way of dividends. Invest in companies with high ratings.
356. Invest In Companies With Low P/E Ratios
Consider the P/E ratio as a valuation metric. Peter Lynch observes that if the stock is grossly overpriced, even if everything goes right, you won’t make much money. Graham’s criterion also looks for moderate P/E ratio. The buy price should not be more than 15 times average earnings over the past 3 years.
357. Don't Let Money Sit Idle
The value of cash gets eroded by inflation. Let your money earn for you. There is no need to keep cash at home. Technology has brought revolution in banking. Your ATM is like a bank in your pocket. Use debit card and credit cards. You can opt for mobile banking and internet banking. Make less cash transactions.
358. Invest In Companies Of Adequate Size Only
The earnings of a small company fluctuate more compared to medium and large companies. Graham suggests investing only in companies of adequate size, measured in sales. This limit was $100 million in 1971. Making adjustments for inflation, you can now fix the lower cut off at $500 million.
359. Learn Walter Schloss’s Three Criterion for Stock Picking
Learn Walter Schloss’s three criterion for stock picking. First, avoid companies with too much debt. Second, focus on book value, not earnings. And third, buy stocks that are trading at new four- or five-year lows. If a stock meets all three criterions, it is a good buy. Such stocks can survive shocks, even of a Great Depression.
360. Keep A Minimum Amount in Short Term Securities
Don’t put large amounts in short term securities. They give lower returns. Limit investments in short term securities to two – three months of your routine expenses. You can even invest your emergency fund in fixed deposits with the banks. The deposit amount will compound and grow until you need it.
Here's our list of the best short term investments.
361. Balance Current Performance With Future Growth
Look at a company’s current performance over their future projections. Focus on the quantitative measures of value of existing assets and current earnings power. Graham finds these measures more dependable than promises of future profits or returns. Analyze the company’s financials and determine an intrinsic value.
362. Reaching Satisfactory vs. Superior Investment Returns
Graham tells, “To achieve satisfactory return is easier than most people realize. But to achieve superior results is harder than it looks.” If you want superior performance of your portfolio, follow strictly the strategies of well-known great investors. Read their investment philosophies and put them into practice.
363. Search For Great Stocks
Great stocks are extremely hard to find. Identify Growth Stocks with rapidly growing sales and earnings. Devote time to doing this. Fisher says, “If the job has been correctly done, when a common stock is purchased, the time to sell it is almost never.”
364. You Only Need A Few High Quality Investments To Accumulate Wealth
If you would’ve invested $40 in the Coke IPO in 1919 it would now be worth over $10 million. Of course, after adjusting for inflation, that $40 in 1919 would now be equivalent to $540. But there is no comparison between $540 and $10million! Coke has created wealth for its shareholders who have shown patience. It rewarded its shareholders through dividends, stock splits, and reinvestments. Do extensive exploration and find out another Coke!
365. Don't Simply Rely On Investment Tips!
A lot of people want investing hacks, tips, and tricks. But the best way to invest is to setup a long-term strategy and stick to it. Find an asset allocation that works for you. Invest in low-cost index funds and ETFs. Rebalance your portfolio annually. Make regular contributions and investments. And just get started!