Have you ever wondered what separates successful investors from marginal ones or from those who get clobbered by Wall Street? The best investors aren’t always better stock pickers. Most of them don’t boast Ivy League degrees. Nor do they have access to “inside” information. In truth, the most successful investors — that is, the ones who consistently make money in up and down markets — are simply the people who make the fewest investing mistakes and those who quickly fix the blunders they do make.
Too often, unsuccessful investors think: “If I could just pick the next Microsoft, I’d be rich,” or “If only I had sold my stock at its peak, I’d have a fortune.” Well, it certainly helps to identify industry-leading companies as potential investments. And “selling high” may bring you one step closer to fattening your bank account. However, the reality is that just buying good investments and selling them for a profit offers absolutely no assurance that you will be a successful investor. In fact, if you only master those two elements of buying and selling, you almost certainly will fail miserably as an investor.
The “Buy Low, Sell High” Myth
“Now wait a minute,” you may be saying. “Isn’t that the very definition of smart investing — knowing what to buy and when to sell? And what about that old adage, ‘buy low and sell high?’ Isn’t that what this whole investing business is all about?” Actually, nothing could be further from the truth. Here’s why: All the buying and selling savvy in the world won’t maximize your wealth if you make any number of costly investing missteps.
Consider, for example: What happens if you trade so much that commissions eat away at your profits? What happens if poor planning or impatience leads you to pay extra taxes to Uncle Sam? What happens if you trust an unscrupulous stockbroker, trustee, or accountant, and he skims funds from your account? What happens if your investing strategy fails to take advantage of the benefits of compounded interest?
So sure, you might buy some “winners” for your portfolio — and even sell them at the right time. But what happens if that Wall Street darling you loaded up on nosedives inexplicably right after you purchase it? [There's] nothing terrible about its management, product or the industry in which it operates. Just negative overall “market conditions.” These are just a fraction of the possible dilemmas that await beginning and long-time investors alike.
Mastering the Five Phases of Investing:
- Strategizing to meet your personal goals
- Buying the right investments
- Holding and adequately monitoring the investments in your portfolio
- Selling investments in a judicious manner
- Dealing effectively with investment intermediaries such as stockbrokers and financial planners
Despite conventional wisdom, shrewd investing clearly entails far more than buying and selling know-how. Successful investing involves mastering a multi-faceted process and side stepping the dangers lurking at every turn. These dangers must be avoided to maximize investment performance and multiply your wealth.
By now, you may be asking, “If investing transcends buying and selling, what else is there?”
The investing process