Don’t get scared out of investing in stocks
I was that kid. The one who touched a hot stove despite the warnings; I still carry the scar to prove it.
Of course, I gave birth to one those kids, too, but in her case the culprit was a hot curling iron. And, yes, she also carries the scar. But neither of us has made the drastic decision to swear off the kitchen or curling our hair. We still do both those activities but when we do, we are mindful of the risk.
The same care should be taken when it comes to investing. The great Peter Lynch once said: “The real key to making money in stocks is not to get scared out of them.”
Here are three rules for new investors:
Some discipline better than none
Once your investment strategy is established, never deviate. Your discipline may be as simple as buying stocks you know, or stocks that grow their dividend every year, but remember, be patient. Just as a diet or exercise routine may not yield the desired result each day, you will never achieve your goal unless you stick with it. When we employ sound discipline, we put ourselves in a position to succeed over time.
Careful with stock tips
Taking stock tips from people whose investing prowess is unknown to you is like gambling. I know because I have made just about every stock tip mistake known to (wo)man. I have acted on tips from colleagues, from virtual strangers and “experts” on TV. I have zigged when I should have zagged and held speculative shares right into bankruptcy. Because I personally didn’t know what I was buying, I compounded bad decision upon bad decision. Never, ever buy shares in a company you don’t know or whose product you haven’t used or researched, no matter who told you it was a “sure thing.” You might as well let it all ride on the roulette wheel.
Remain dispassionate but diligent
If you are interested in buying great companies on sale, be prepared: Almost anyone will be able to tell you what is wrong with a company when its stock is cheap. Ignore them.
If you buy high-quality companies, you can wait for the management team to solve the problems and restore earnings growth. The trick is not to let emotions take over. I hate driving the winding road to Lake Tahoe, but because I like Lake Tahoe, I have learned to remain dispassionate but diligent when I travel those roads – eye on the goal – an excellent strategy for long-term investors.
Sooner or later you will get burned in the market, despite your best efforts. Investing is informed decision-making that comes with risk. But investing also comes with great reward over time. Invest for the long-term and whatever you do, don’t get scared out of the stocks you love.