Most people would agree that when it comes to investing it is essential to do it wisely. It’s rarely a good idea to dive into any investment opportunity without weighing up the risks. Successful investors, institutions and Hedge Funds carefully calculate the risk associated with any opportunity before reaching a decision. And you should too.
At Forbes Lawson we provide advice that will help you prepare for your financial future. Whilst we won’t recommend particular stocks or instruments for you to invest in, we do want to see you prosper and so these high level tips are meant to give you food-for thought when it comes to making your own investment decisions.
If you are determined to take on the world of investing on your own with some of your funds, rather than leave it to the professionals, we’ve put together 6 tips to help you on your way to becoming a better investor.
Gain a Better Understanding of your Investments
When it comes to investing in stocks for example, copy the masters and gain a deep understanding of the business in which you want to invest.
We would advise taking your time and fully considering the merits of any investment. It is essential that first you do your research, discover and become familiar with a business’s products or services, its logistics and market influences. You should also ensure you have a good idea of the competitive landscape for their products as well as a good understanding of their management. After all you are buying a piece of that business – no matter how small.
A great book on this subject which underlines this point is “The Intelligent Investor” by Benjamin Graham. Warren Buffett describes the day he first picked up this book as one of the luckiest in his life. Later Buffett went on to work with Graham and shape an outstanding career as one of the greatest (if not the greatest) investors ever.
In addition to conducting your research properly, a related point is that you shouldn’t rush in! It’s quite easy to get carried away by some great tip your best friend’s wife’s brother’s uncle is on to: as a general rule ignore these so called hot tips. In fact, consider every opportunity very carefully.
A good investor understands that when it comes to making money you don’t just get lucky. A good investor possesses the behavioural qualities of patience and discipline when it comes to their investment plans.
It is true that betting on long shots or taking the risk when investing in untrustworthy investments may sometimes produce a profit. It is also true that there is a greater probability that this type of high risk choice will end in the loss of some of your money if not all of it.
Our advice to our clients has never changed: slow and steady wins the race.
Take the Unbiased Approach
When on the road to becoming a good investor you have to take an unbiased approach when it comes to reviewing past investments. Pin point times in your investment timeline where you were successful and where you weren’t.
Compare your findings with benchmarks such as the FTSE, the S&P 500-stock index or a bond index to allow you to review your performance. Keep a journal on the decisions you make and why you are making them.
Then identify areas where you succeeded and cut costs by identifying and eradicating particular weak points.
Use Losing Investments to your Advantage
When it comes to selling your losing investments, in some countries you can offset losses under the tax system? Make sure you understand this and get professional advice from your accountant on the timing of disposals to optimise your tax position.
When investing, you are going to see some losses along the way – hopefully overshadowed by your winners. It’s what you do with your losses that counts. Use them to offset capital gains, then profit on a tax write-off by lessening your tax liability for example.
Pick the Right Opportunity
It may still be important to sell your stocks off, even when there successful. We’ve known many professional investors to establish a set price for their stocks and sell off their shares when that number is reached. In contrast to this Warren Buffett claims he never buys a stock with the object of selling it. He buys stocks because his analysis of the business, the market, the industry tell him that the stock represents a long term opportunity. He sells when he believes that opportunity has diminished. But selling is not something he does very often.
What kind of investor are you? Does it suit you better to set a target, an exit point? Or would you be better following the Buffet method? Either way we would suggest it’s better to have decided what your over-arching strategy is, and stick to it as far as possible given your goals and other considerations that will arise along the way.
Know When to Buy
When markets are in a free-fall your initial instinct is to sell. However, you will be aware that it is often the case that those investors who don’t sell make the most money in the long run. They buy when others sell and they sell when others are buying. It is a long term game. Warren Buffet rarely takes the market into account when making a decision except to the extent that the price is represents a good long term value investment.
It is important to remember that investing isn’t easy, it takes work and good advice for it to be successful. If you take your time however and remember to do your research and invest wisely you’ll be well on your way to becoming a better investor.
If you’re looking for further advice on how to invest wisely, please don’t hesitate to get in touch on 01224 747889 or visit our website www.forbeslawson.co.uk for more information.