stocksage

 

Warren Buffets' favorite rules caught up with a lot of investors lately. It’s the recession and since the last quarter of 2007 to date, there has been a series of bankruptcies, liquidations, bailouts and restructuring across various strata of the world economies.

It was a hard lesson and a harder pill to swallow and that is still giving the worlds best strategists sleepless nights. At first, there seems to be no solutions in sight to these problems.  Investor’s debts and losses are rising by the day. With the news on Ben Maddof, that seals the big problem with a sledge hammer. I can still imagine so many of his ilk still waiting to capitalize on the existing problems and fleece off investors money to another Ponzi. Good or bad, we are still feeling the consequence of a badly managed economy.

However, we learnt the following lessons about the stock market.

 

 

 

DO NOT FOLLOW THE BAND WAGON

 

 It is not always good advice for any investor to follow the band wagon and buy the most sought after stock in the bourse. The most important and often ignored advise is to ask why that stock price is going up and given much attention. Ask questions on such issues so as not to lose money.

 

 

 

BUY ONLY VALUE STOCKS

 

 Value stocks are those stocks that have weathered the storms in the market. Irrespective of market conditions, rain or high water, investors earn regular dividend income, derivatives such as scrips and splits. The pattern of value stocks is predictable compared to non value stocks.

 

 

 

RESEARCH YOUR TARGET INVESTMENT DESTINATIONS

  

Research may include studying financial statements, market reports, economic news, business environment, talking to shareholder pressure groups, CEOs, attending the the meeting of shareholders as a guest and newspaper reports. Particular atention must be given to the CEO s annual report as it gives an insight into the operating environment of the target stock.

 

 INVEST FOR THE LONG TERM                                                                                                         

 No matter your  objectives in the stock market, always have a focus on long term investments. Long term investors have gone ahead to create stupendous wealth for themselves because they have delayed instant gratification, built empires through thick and thin and have been consistent investors over a long period of time.

 

LIMIT YOUR OVER RELIANCE ON YOUR FINANCIAL ADVISERS

  A popular adage says that your future is in your hands. No matter how well intentioned, your financial advisers work towards getting their fees. They might cajole you to invest on impulse that might prove disastrous.  So keep your eyes and ears open, reason with your head, ask them questions that give answers to the reason why they want you to invest in a particular product.

 

CONCENTRATE IN A FEW STOCKS AND DONT LOSE FOCUS

 The most succesful businessmen and the richest men in the world made money by concentrating their wealth in a very stocks. They hardly buy every thing in sight. Instead of  shying away when that stock or firm is in trouble, they take control of it and turn its fortune around for the stakeholders benefit. This is their key secret to success. Invest in only businesses you understand and not complicated ones.

 

DO THE MATH AND STUDY THE CHARTS

 The bulk of financial advice is made up basic computations , ratios and permutations about the health of an organisation or investment destinations. There are now a lot of teach yourself books, written for the purpose of the non-financially literate investors. There are seminars organised for such purpose and they dont cost much. It will take a month of reading such books to understand these tools that can make difference in your decisions.

MANAGEMENT OF THE FIRM

 A lot of investors only care or act on business news tips and dont care much about who manages their investments and who manages the firm in which they have invested. With a quality management team, investors are rest assured of moderate returns. Their main focus is to make the their stakeholders happy with their investment.

 

PUT YOUR EGGS IN ONE BASKET AND WATCH IT

 This slogan was borrowed from a major mutual fund manager in my country, Nigeria. The stock market is a basket of opportunities-equal opportunities and all the necceasry care must be taken when making decisions concerning it. No condition is permanent and  investors should make alternative plans  apart from puttting all their life savings in the stock market. Dividend income generated from stocks can be channelled to new business opportunities or real estate. Therefore, watch that basket.

 

HAVE AN ENTRY AND EXIT STRATEGY

 No matter how long is long term, every industry is  subject to change at any given time. A simple innovation can close even the biggest of industry if it fails to innovate. Industry survival cycles are now less as compared to the last two decades. As a kid , i watched movies on VHS cassette on a a video cassette recorder. Now i watch them on DVD.  Develop an exit strategy for your stock market investments. They keep you focused.