Buying stocks isn’t hard. What’s challenging is choosing companies that consistently beat the stock market.
That’s something most people can’t do, which is why you’re on the hunt for stock tips. The below strategies will deliver tried-and-true rules and strategies for investing in the stock market. (Need to back up and learn some basics? Here’s our guide for how to buy stocks.)
One bonus investment tip before we dive in: We recommend investing no more than 10% of your portfolio in individual stocks. The rest should be in a diversified mix of low-cost index mutual funds. Money you need within the next five years shouldn’t be invested in stocks at all.
1. Check your emotions at the door
“Success in investing doesn’t correlate with IQ … what you need is the temperament to control the urges that get other people into trouble in investing.” That’s wisdom from Warren Buffett, chairman of Berkshire Hathaway and an oft-quoted investing sage and role model for investors seeking long-term, market-beating, wealth-building returns.
Buffett is referring to investors who let their heads, not their guts, drive their investing decisions. In fact, trading overactivity triggered by emotions is one of the most common ways investors hurt their own portfolio returns.
All the stock market tips that follow can help investors cultivate the temperament required for long-term success.
2. Pick companies, not ticker symbols
It’s easy to forget that behind the alphabet soup of stock quotes crawling along the bottom of every CNBC broadcast is an actual business. But don’t let stock picking become an abstract concept. Remember: Buying a share of a company’s stock makes you a part owner of that business.You’ll come across an overwhelming amount of information as you screen potential business partners. But it’s easier to home in on the right stuff when wearing a “business buyer” hat. You want to know how this company operates, its place in the overall industry, its competitors, its long-term prospects and whether it brings something new to the portfolio of businesses you already own.
3. Plan ahead for panicky times
All investors are sometimes tempted to change their relationship statuses with their stocks. But making heat-of-the-moment decisions can lead to the classic investing gaffe: buying high and selling low.
Here’s where journaling helps. (That’s right, investor: journaling. Chamomile tea is a nice touch, but it’s completely optional.)
Write down what makes every stock in your portfolio worthy of a commitment and, while your head is clear, the circumstances that would justify a breakup.
4. Build up positions gradually
Time, not timing, is an investor’s superpower. The most successful investors buy stocks because they expect to be rewarded — via share price appreciation, dividends, etc. — over years or even decades. That means you can take your time in buying, too.
5. Avoid trading overactivity
Checking in on your stocks once per quarter — such as when you receive quarterly reports — is plenty. But it’s hard not to keep a constant eye on the scoreboard. This can lead to overreacting to short-term events, focusing on share price instead of company value, and feeling like you need to do something when no action is warranted.
When one of your stocks experiences a sharp price movement, find out what triggered the event. Is your stock the victim of collateral damage from the market responding to an unrelated event? Has something changed in the underlying business of the company? Is it something that meaningfully affects your long-term outlook?