I’ve given some pretty decent investing tips while writing on stocks and shares, if I do say so myself. But I think, sometimes, there are better ways to learn how to do well in the stock market than picking individual stocks. Once I learned these lessons, my investing decisions became immeasurably better.
Do your own research
I particularly like the Shakespearean phrase: ‘A fool and his money are soon parted’. A fool (lowercase) makes wild bets on companies he knows nothing about, because his neighbour told him to, or he overheard it in the pub, or on a bulletin board. And as investing tips go, there are few better than the next one.
In his 1985 letter to Berkshire Hathaway shareholders, Warren Buffett recounts the story of the oil prospector who dies and meets his maker in heaven. St Peter tells the man “You’re qualified for residence, but the compound reserved for oil men is packed. There’s no way to squeeze you in.”
Thinking for a moment, the oil prospector shouts: “Oil discovered in hell!”
The men duly march down the stairs, leaving space for him to enter the pearly gates. St Peter turns to the man and invites him inside.
“No,” says the oil prospector, “I think I’ll go along with the rest of the boys. There might be some truth to that rumour after all.”
It’s a lesson in the dangers of jumping on the bandwagon without first doing your own research.
Use it wisely
If I was 21 and just investing for myself, I’d allow a higher proportion of my cash for far-off future punts. But I’m 40+ and I can’t just spend another two decades earning that money back. So I need to be careful. That’s another one of my favoured investing tips.
The amount of money I have to invest is not infinite. So I have to think about how much I could stand to lose if my bet goes south.
So I carefully research companies I think will do well in the future. Then I buy some shares. Then I sit on my purchase. Nothing is certain in life. And I could just as easily lose all my money even if I learn these investing tips. But I think it’s useful to always be learning.
Investing tips: never sell?
There’s an interesting question that I’m often asked by family or friends. When should I sell a stock?
It’s very easy to buy. And not so easy to sell. There’s a curious psychology at play. It’s better to be right than get rich! My ego gets in the way. That makes it more difficult than it should be to sell stocks.
Peter Lynch puts it like this.
“You have to find out why you bought a stock. If it’s a cyclical company and they’re doing poorly, you wait until things are getting better, they’re doing terrific, and then you sell it.” Knowing why I bought a stock in the first place helps me decide when to sell. It’s something most investors don’t do.
These are the sum total of the investing tips I’ve learned over the years. I hope they’re helpful.
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Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.