The level of world chaos portrayed by our media today can be overwhelming and is liable to strike fear into potential investors. Riots in Hong Kong, international trade wars, election hacking, impeachment, Brexit, European recession threats, cybersecurity danger, and of course climate change have all featured in recent headlines.
It’s important to remember that business carries on, day in, day out, and that the stock market is likely to keep ticking over, even if it does fluctuate in response to news reports.
That’s why I believe a long-term investment plan is crucial in creating a successful approach to investing. By focusing on the underlying fundamental value of a company in relation to its stock price, rather than intermittent fluctuations, you get a clearer picture of the true worth of the business.
If you think like a company owner, rather than a stock trader, then you’ll be more likely to buy stocks in companies with true value.
Investing a lump sum
If you have a large lump sum such as £10k or £20k to invest, then you’d do well to follow the advice of seasoned investor Warren Buffett, who recommends you buy and hold for the long term.
Although losses are unsettling, it’s wise not to watch the markets too closely. Have courage in your convictions and if you’ve purchased shares in a company you’re confident in, then you shouldn’t let intermittent fluctuations wear you down.
So, what is a good company to buy and hold, and how do you find one? Well, this is the million-dollar question! The key to answering it is to do your homework. Buying during an economic downturn can be a great time to pick up bargains.
Sectors that tend to be recession-proof include consumer goods, pharmaceuticals, and defence. Food and drink sales continue to thrive in times of trouble because people must eat. Funnily enough, the sales of sugary treats increased in the 2008 recession as people reached for a sugar hit as a source of comfort.
Following this thread, supermarkets are a necessary staple of modern life that won’t be disappearing anytime soon.
A lucrative investment
The ideal company is one that is undervalued, has growth potential ahead, and offers a reasonable dividend yield. Finding such a company is not quite so easy, but as Buffett has proven time and again, it’s certainly not impossible.
In Buffett’s 2017 shareholder letter he reiterated that it’s vital that shareholders take the time to digest and analyse the business information at their disposal, both current financial status and overall company standing, before initiating any trades.
I have read countless times that you should not ignore company reports and truly agree this is great advice. Annual reports are freely available information and can provide great insight into how well the company is run, as well as its financial condition.
Therefore, this is a great place to begin planning your investment strategy in your quest to find the perfect place to invest on your road to riches.
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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.