The Dow and S&P are in record territory and most patient investors have recovered their losses from the Great Recession. Smart investors, who kept putting money in throughout the dip, have been rewarded handsomely. People who panicked and pulled their money out of the market, recorded huge losses and then missed the recovery. This is what separates investors from amateurs.
Invest Before Spending
Most rational people realize they need to save and invest part of their income, but very few do it on a regular basis. There are lots of reasons why people spend all of their money, but the result is always the same. People who fail to save will always live paycheck to paycheck. It’s important to dedicate at least 10% of your net income to your future. Invest before you spend any money or pay your bills. Otherwise, your paycheck will disappear and you will have earned nothing for yourself.
Invest with Confidence
I have been investing for 27 years. I have seen Black Monday, the Asian Currency Crisis, the Dot-com Bust, the Flash Crash and a couple of recessions. I am still confused, confounded and misled by the market, just like everyone else. The difference is that I stay focused and invested, instead of panicking. I would have loved to have been out of the market during these downturns, but I wasn’t. So, the only logical thing to do was to keep investing and profit from the rebound. Maybe, I will predict the next big downturn and move my investments to a safer location. But, I won’t be doing it in a panic, after the market has crashed.
Invest with Patience
One of the hardest things for me to learn as an investor was how to have patience. The markets and investments never seem to do what they are supposed to, especially in the short term. There are years at a time when the market is overvalued and people are buying overpriced stocks in a frenzy. There are times when good companies and industries have fallen out of favor. There are times when people are too scared to invest, while stocks are a bargain. Most important, there are companies with good earnings and a low stock price. Over the long haul, the ups and downs average out and the stocks of good companies will go up.
Invest with Intelligence
Opportunities come quietly and they are often missed by those investors who are reactionary. No one comes on the financial news and shouts, “Google and Apple are going way up in the next five years.” They only come on TV after the fact and act like they knew it all along. Since there is no crystal ball that can predict the next Wal-Mart, investors need a reliable method to separate the future winners and losers. I prefer good fundamentals to hot tips and technical indicators.
- Revenue Growth (> 10%)
- Return on Equity (> 15% )
- P/E Ratio (< 10:1 )
The Bottom Line
The bottom line is that anyone can invest part of their income and everyone should. There are an unlimited number of fears and excuses, none of which will make you wealthy. Invest some of your income for yourself and your future.
“The individual investor should act consistently as an investor and not as a speculator.”
Benjamin Graham – American Value Investor