De Justica Colaborativa
Much of my investment strategies are derived from fundamental investing and value investing. I adopt strategies much like Warren Buffett not simply because he is really a well-known investor but simply because they make the most sense to me.
That is the key to successful stock investing. Don't pay attention to anyone just because you believe he is more experienced in stock investing then you are. Rather, aim to think and analyze and read more about your own before deciding which strategy best suits you. Once you have developed your own investment philosophy, stay with it and trust only yourself.
My Investment Philosophy
1. Do not generate losses.
As many people know, Warren Buffett famously help with his two rules available investing in a humorous manner in which Rule number 1 is "Never Lose money" while rule number two is " Do not forget rule number 1".
Capital preservation is essential just because a stock which has lost half its value will have to double in value before getting to where you started. That's the reason you have to be extremely cautious inside your selection of stocks and that raises rule number 2.
2. Using a Margin of Safety
The margin of safety, to put it simply is really a buffer that you set up between what you perceive to become the need for the stock and its price. If you'd prefer a stock to become worth 1 dollar and also you only buy it if its price is 50cents, your margin of safety is 50 percent.
Deciding just how much margin of safety you should give to a stock varies for businesses in various industries and is another topic by itself.
In conclusion, a margin of safety is necessary to protect your capital in case you were wrong inside your initial assessment of the stock pick. That way, even though you were wrong, you'd have purchased the stock at a reduced price then if you had not catered for a margin of safety.
3. Invest in the future
It's impossible to time the marketplace, but many people appear to think other wise. They buy once the stock dips slightly and hopes that soon they can market it for a profit. These folks usually adopt a "hit and run" strategy where they're contented with creating a few A hundred dollars every time they create a trade. They also have a cut loss strategy where they will exit the market if the price drops beyond a specific amount within days of acquiring the stock.
The truth about the stocks market is that real cash is made a few weeks. If you're frequently entering and exiting the market, most likely throughout the few days of a real rally in price, you won't be in the market, thus missing out on earnings.
Investing in the future also saves you on commissions paid to the broker, capital gain taxes and puts the power of compounding into play. The difference between exchanging the market and buying for the long term is significant and should not be ignored.
4. Knowing when you should sell and when not to sell
Despite the fact that I advocate investing in the future, that doesn't mean holding on to my investments forever. When I value a regular, I curently have in mind how much the stock may be worth and for that reason curently have an exit price in your mind. The objective of value investing is to purchase this stock at a significant discount from its value.
However, there could be instances when the market is euphoric and the cost of the stock surges way beyond what I have valued it at. At this point of time, I will reassess the company to ascertain if I've omitted any key news or factors which could result in the rise in price. If my asessment from the company continues to be same, I will sell the stock since there is pointless why I ought to require advantage of the insanity from the market.
It is important to not be greedy at this point of your time and keep enhancing the exit price you've set. Have an exit price and stick to it.
Overturn holds true also. Many people panic and sell once the price drops and that doesn't make sense. When the price of a stock drops, look into the fundamentals again. If nothing has changed, your assessment of its value should be the same and this implies that the stock is at a much greater discount then that which you have previously bought at. In this instance, you should take the opportunity to buy in additional of the stock.
5. Keeping Money with you when there are no good stocks to purchase
Many reasons exist to keep cash with you when there aren't any good stocks to buy. Lots of people find it difficult to do that. As soon as they have some money at hand they would like to buy some stocks because if they do not, they feel that they are not on the market and thus not "investing".
Also, keeping cash with you enables you to take advantage of sudden dips within the stock prices because of some market fluctuations which are not resulted from the alternation in the businesses fundamentals. In these cases, you need to average down and purchase much more of that stock. The worst thing that may take place isn't having cash to average down on a purchase that has now presented a greater discount then before, because of your have to always keep all your profit the marketplace to "feel that you're investing".