Long Term Investments, Your Best Bet in the Market
We already learned that when it comes to investment strategy you must set up goals and a plan to fulfill this goal. As a part of these series, I am going to talk about the different strategies you can use and how to apply them. Today I want to talk about long-term buy and hold investments, my personal favorite.
How relevant will a company be in the future? Long-term buy and hold sounds very technical, but it is simply buying a stock because you believe the company is going to grow in the next 5 to 10 years. Then, you will hold it until the company is either overvalued or is not going to have significant growth. This strategy is not about buying to get rich fast, but rather buying to get sustainable investments that will provide constant returns for your future.
It is important that you at least have some money saved and invested for retirement or maybe for a rainy day because you never know how bad times could get and you must be ready for any possible outcome. Our goal as investors is generating enough money that provides the life we want, and that is why long-term investment is a good strategy.
This strategy has the advantage that you don’t have to pay a lot of fees, because every transaction in the stock market has a fee involved. High frequency traders pay lots of fees and that makes it harder to make profits on their trades (maybe that is why most of them can’t beat the indexes). It also makes short-term movements in the market irrelevant to you and you can invest in riskier stocks because of this. Volatility stops being a factor in your investment and you can concentrate on the fundamentals.
I started investing real money 1 year ago, and I always had my long-term savings goal. During my first year investing I learned a lot of things, and I would recommend that if you have some savings you try investing too.
My first learning experience with stocks was what I talked about in my first article, “cult stocks” and how they can be very tricky. I lost over 20% on Tesla because I believed in the brand but I didn’t do proper due diligence on the company’s financials. My second learning experience came from Brexit. When Brexit happened, my whole portfolio plummeted about 10% in one day. To be honest I got a little depressed. I had been investing for less than 2 months and my portfolio was already going down so much I was embarrassed to talk about it. I decided to stay truthful to my strategy and my goal, I stayed invested on the same stocks and after a couple of weeks I saw how my portfolio got back up. I learned that when you are invested long term, these market movements mean nothing to you. You only have to keep a cool head and not sell on market wide falls.
I am not saying you should never sell. You should always limit your losses. We can’t be right all the time, but if we limit our losses we will lose small and win big. In the long run, this will show up on your returns. So, remember to set a stop loss when buying stocks, and if you decide to invest long term you will never have to worry about short-term market movements again.
You must look at the fundamentals; does the company have a healthy balance sheet? Is the company investing in new product development? Is the market where the company operates growing? How does the company manage its cash? All this factors are important to you when doing research on a stock, and some other factors can be important too, depending on the industry; I’ll talk more about this when I compare technical analysis to fundamental analysis. So, remember to keep your goal in mind and stay true to your strategy.
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Disclaimer: This article is based purely in our own knowledge, experience, and research. It should not be taken as an expert’s advice for stock picking.