Day-to-day market movements can be sometimes quite dramatic and unexpected. That being said, I believe it is important to understand that volatility is the "new normal". Sometimes the market makes big moves in the morning, and corrects itself later that same day. On the other hand, sometimes the market makes big sustained moves for several days straight. Volatility, leads us to our next tenet.
The best investors are not afraid of market downturns, but instead, may find ways to capitalize on market downturns. Admittedly, this is certainly easier said than done and involves greater risk. Many investors will have the instinct to sell after seeing their portfolios drop say 10%, but sometimes, investors should be doing quite the opposite.
There is a key difference between a disruptive company and a good investment. Some companies are very disruptive, but are currently overvalued. On the other hand some companies are not very disruptive but are somewhat undervalued. That being said, I believe the best investment prospects are companies that are disruptive and undervalued - although finding those is very difficult. I hope to make this challenge easier. The [Exclusive]Disruption Score is designed to analyze the long-term disruptive potential of a given stock but then wise investors will combine this analysis with more traditional methods to analyze current valuations and to help determine when to invest in a particular stock.
Perhaps some of the most enlightening investment advice I have ever heard was something said by Warren Buffet.
"Diversification, as practiced generally, makes very little sense for those who know what they are doing." ~ Warren Buffet
This may seem counterintuitive at first but I'd like you to consider the following example. Lets say you have 30 stocks that you like. Obviously, you like some more than others and so you will weigh them differently in your portfolio. In that sense, most investors ask themselves, "How much of my portfolio should I allot to each of these stocks?" Nevertheless, it seems many investors do not even realize that there is an opportunity cost associated with every investment. A dollar you invest in Stock #30 is a dollar you could have invested in Stock #1. That being said, it is important to ask "Should I invest more in Stock #1, instead of investing anything in stock #30?" The answer is not always yes, but it is still important to ask the question.
I know this advice can be a little confusing. You may be thinking, "Wait... So... Should I diversify more? or should I diversify less?" Well, the answer is that it depends.
When it comes to investing, one of the biggest factors to your success is "How You Invest". Even if every idea that is discussed on this platform ends up being a winner (unlikely as that is), there are still plenty of ways that investors can make very costly mistakes. That is why it is very important for investors to establish and follow good investing habits and to determine the investing strategy that works best for them given their individual situation.
That being said, sometimes "The less I do, the better I do". I believe this concept will hold true for many investors. That is why the only investment strategy we might generally recommend is [Exclusive]The Hands Off Approach.
The are many ways to get started. For those that may need a little more guidance, here are the questions I believe investors should be asking themselves and resources that may provide the answers that may be right for you.
How should I invest?
What am I going to invest in?
Why am I investing in it?
Lastly, here are some other helpful links that you might find useful: