How to become a successful investor

The stock market is both the most lucrative and riskiest type of investment. In most cases, the flow of cash to assets that meet a given investor’s expectation is what makes up investment allocation. There are differences between investors and traders on the exchange. Both a trader and a classic investor are looking to make money. The history records the many cases where an investor starts with very little money and becomes very wealthy, or when a millionaire loses all his investments in the stock market and becomes poor. What is the key difference between the winners and losers in the stock market? It is either knowledge gained from making mistakes or accumulated wisdom by other investors that makes investing more profitable. The following principles are useful to keep in mind:

You should not invest all of your money in stocks, especially if you’re a beginner. The recommended amount of money that you should invest in stocks is between 25% and 50% of your total budget.
Do not invest all your money in one stock. Diversify your portfolio with stocks from different industries.
Pay attention to market conditions and bear markets. You can sell most of your holdings ahead of time.
Do not rush to find an investment solution. Before making any investment decision, carefully review financial quarterly reports, news, as well as macroeconomic trends, before you make any decisions.
Do not allow your emotions to override a rational, disciplined approach.
Reliable software tools that reflect the concentrated wisdom of investors can help improve your return/risk ratio.
Stocks are always volatile. Stocks are always at risk of experiencing sudden volatility. Even the most well-respected stocks can lose value.

Recent research in the USA shows that investors have an average of $250,000 worth of investment assets. More than half of all investors use brokerage advices. Both men and women are equally fond of investing. Over the past decades, investors have been expecting a 10% annual return on their investment. This is a drop of 30% from the previous decade. Investors prefer long-term investments that have less than five transactions per annum. It is not possible for everyone to invest successfully. Most investors lose their investments due to lack of knowledge, impatience and greed, fear, or other delusions. Experienced investors know that time invested to improve investing skills is directly proportional to investment return.

Self-education is a great way to improve your investment skills. Investors often come to the conclusion that fundamental analysis is more important than interpretation of technical analysis indicators after having read dozens of books on investing. Investors must also read financial reports quarterly, monitor market conditions, and try to predict macroeconomics trends. What is the time required to do all this? There is an optimal way to invest time efficiently and get the best return. To be a master at driving, it’s enough to read one book and then get driving training. Then, you can practice regularly. Similar results can be achieved with investing skills. However, a few books are required. These books can help improve your investment skills.

John Boik’s Lessons from the Greatest Stock Traders of All Time (a good introduction to investing)
Stock Investing by Paul Mladjenovic (very helpful and important book).

These books are by William J. O’Neil

How to make money in stocks
24 Essential Lessons for Investment Success
The Successful Investor

These books are simple and fun to read. Expert opinions can sometimes be contradictory. Some authors suggest using the “averaging down” method. This is a way to lower the price of your purchases. “Averaging down” is a way to purchase more stock of a particular issue at a lower price than your previous purchases, as the price drops. Others disagree. If the stock price falls below 8%-10% of its purchase price, they recommend selling it. This contradiction is problematic because averaging down can work well if the decreasing price is a temporary correction, but not a sign that there is declining business or a long-term drop in demand for stocks. How can you tell if a correction is an alarming sign? It is possible to determine the exact value of a company and its stock, and also to understand current market conditions and macroeconomic trends.

All books on investing can be helpful to an extent. Training is the next step. You can do it in a simulation mode without spending money. It will then be easier to learn lessons with real money. Regular practice is essential. It is difficult to quickly acquire investing skills. The market is always changing. You can have a bull market or a bear market, with different corrections. Some market cycles can last for a very long time. A bear market is a rare event, occurring only once every 12-14 years. It would still be beneficial to experience a bear-market at least once.

Fundamental analysis is the first step in investment analysis. Fundamental analysis is a way to predict long-term stock performance. It is dependent on many factors, including company profitability, growth, liquidity and market stock value relative to earnings, book value, sales, and other factors. News, analyst opinions, and ratings all affect stock price. These factors are many and each one has a different impact on stock performance. Statistics over a number of years have shown that investing in a company with a stock full of negative parameters is more risky than investing in other companies. A company and its stock can all be considered a system. The best model for such system quality is one that combines all the relevant factors with different weights.

The chances of investing success can be increased by using technical analysis in addition to fundamental analysis. MetaStock is one of the most powerful software tools for performing technical analysis. It is difficult to do a complete technical analysis because there are so many technical indicators. Investors may only use the best indicators from their perspective. Each indicator can predict stock prices differently. It would be ideal for computer software to determine the current capabilities of indicators in predicting stock prices and to assign each indicator a weight. It would then be logical to combine all signals from each indicator to increase accuracy in prediction. It is important to remember that the price of any stock can fluctuate depending on many other factors. This means that there should be a time when stock can be bought and sold. Timing analysis is important, too.