After another year of investing, we’ve all made our fair share of good investments and bad investments. To help kick those bad investment habits in 2007, here are 10 investing resolutions for the new year:
Stick to your Investment Plan
Stay away from “What’s Hot on Wall Street” and stick to your investment plan. You beat the market by investing where Wall Street isn’t looking. Let your investment plan be your guide, instead of analyst’s ratings and market trends.
Track Stocks or Funds before You Buy
Following investments before you purchase them is the easiest way to avoid unnecessary losses. I like to track an investment for at least a month before I purchase any shares. Of course, you can adjust this time frame depending on your level of risk-taking and overall investing experience. If you have any doubts about an investment, keep watching it and let your cash holdings gain interest. You won’t cash in on any short-term gains, but that’s better than making a poor investing decision.
Recognize Negative Stock Signals.
Know what to look for in a troubled stock. Are gross margins rising or falling? Is free cash flow declining? Does the stock have a narrow or no moat? Brush up on your stock analysis skills if you haven’t already. You know the institutional investors are refining their skills for 2007, so should we.
Ask More from Management
If you own stocks, get involved in the quarterly conference calls and ask management the toughest questions you can think of. You’re trying to access whether management is confident or indecisive about the latest quarterly results. You want management to feel very confident about the future because your time and investment is at stake. You want positive results so ask for them.
If you own funds, get in touch with the fund manager and find out more about his investment style, philosophy, and natural tendency. Learn more about the manager to get an idea of where your investment is headed to. When your objectives are misaligned with your manager’s goals, it’s time to find a new mutual fund.
Invest in What You Know
Don’t understand how the chip makers generate profits? Then you should limit your exposure to semiconductor stocks. It’s much easier to evaluate a company when you comprehend how profits are made. We seek out things in life that we understand well. Know your company, and you’ll spend less time learning and more time investing. I’ve found when I understand a business, following the company and its stock becomes a lot easier.
Explain Your Investment to Another Person before You buy or Sell
If you have trouble explaining your reasoning for an investment to someone else, then reconsider your decision altogether. A friend may provide valuable insight on your next investment move. If nothing else, you’ll better understand your own reasoning when you put it to work. Anyone that has knowledge on investments will do. And no, your dog doesn’t count.
Stay Away from E-mail and Message Board Spam
Avoid getting your stock tips from e-mails and message boards. These people are crooks who attempt to pump and dump their shares, leaving you with nothing but worthless stock. If you’re getting tips from those two sources, save yourself time and agony by handing over your portfolio to a professional money manager.
Don’t get discouraged; Keep at it
Everyone makes mistakes. No investor is perfect because when we make good or bad trades, someone else is on the opposite side of the deal. No matter what happens, show up to investing and work hard at it. Steve Pavlina writes a brilliant article on how showing up is 80% of the battle. Although this 80% rule is less applicable in the investing game, you’ll miss 100% of the chances you don’t take. Keep your money in the market and let time take its course.
Check Ethnocentricity at the door
Investing has become a global practice that requires diversification throughout continents as well as market sectors. If you want 20% annual gains, you must invest in foreign equities because many domestic companies have saturated their US markets. Start off with a foreign mutual fund or index fund if you’re conservative about foreign investments. For the risk-takers out there, begin your research on foreign companies as you would with domestic firms. 2007 is the year of foreign investments, so get on the bandwagon before the rest of the market does.
Know when to Take a Break
Knowing when to take a break from investing is a very good habit to abuse. Manage your time well and take breaks when you feel overwhelmed. There’s no reason to study the markets when you will get little if any work done. So learn to take a break from Wall Street and live a little. Then return your focus to investing and continue working hard while your money works for you.
I would love to hear everyone’s 2007 resolutions, and you don’t need to have 10 like I did. Even 2 new resolutions will put you way ahead of the game.
While his background is mostly related to trading stocks, he recently gained interest in real estate crowdfunding with Fundrise.