Tag Archives: selling

Short-term Investment Decisions can hurt your Long-Term Portfolio Returns

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While short-term investment decisions can look like the best way to profit in the stock market, we feel that a better strategy by far is to buy top-quality stocks: stocks that will gradually accumulate stock market profits over decades.

And because you’re investing for a long period of time, short market fluctuations will have very little effect on long-term gains. That makes for a less stressful term 30 (not to mention successful) investment strategy.

Short-term investment decisions can lead to premature selling

There is no denying the immediate appeal of taking a fast profit. However, most successful investors find over long periods that much of their profit comes from a handful of their best investments: stocks that went up much more than they ever expected. If you are too quick to take profits, you’ll wind up selling your best picks when they are just beginning to rise.

Even the best short-term investment decisions will cause you to miss out on the benefits of compounding

Compound interest — earning interest on interest — can have an enormous ballooning effect on the value of an investment over the long term, and lift the overall returns on your portfolio.

This compounding principle applies to equity investments like stocks, not just to fixed-return, interest-paying investments like bonds. When you earn a return on past returns (including reinvested dividends), the value of your investment will grow more quickly. Instead of rising at a steady rate, the number of dollars in your portfolio will grow at an accelerating rate.

Additionally, you can’t expect to earn an outsized return on a risky investment in your portfolio indefinitely. Instead, focus on making steady gains over time with mostly conservative, dividend-paying stocks.

Making short-term investment decisions that cause you to miss out on big gains

To succeed as an investor, you need to get used to the idea that short-term declines come along unpredictably. And just as important, you need to be careful that those short-term fluctuations don’t prompt you to make ill-advised short-term investment decisions—decisions like getting out of the market in anticipation of a further decline and then missing out on a big rebound.

Before making short-term investment decisions, remember that the highest long-term returns will come from following our three-part Successful Investor approach

  1. Invest mainly in well-established, dividend-paying companies;
  2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
  3. Downplay or avoid stocks in the broker/media limelight.

Bonus tip: Short selling is one of the short-term investment decisions that we think will cost you money

Short selling stocks involves selling borrowed shares in hopes of a drop in price. We advise against this strategy, mainly because of the perennial drawbacks of short selling. Continue Reading…

Contrarian investing near market tops

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Stock market positive forecast financial concept and contrarian individual financial symbol as a courageous bull running in the opposite direction of a group of bears as an investing trend symbol.“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is.” — Warren Buffett, the Oracle of Omaha.

Overview: Investing near or at market tops is a skill worth having. Is it time to revisit your approach?

Well, this is a pleasant surprise. Many stock market indices are hovering either at or near the top.

Nearly six weeks ago practically all stocks were getting their wings clipped.
Suddenly, interest in stocks has soared to lofty heights well above the clouds.

The question becomes “how does one invest in stocks now that most people are interested?” Something we have not had to contemplate for about a year.

My view is that contrarian strategy delivers rewards in the long run. Risk is ever present; however, emphasis on quality investments tames the turmoil.

Contrarians know that bulls and bears can swap chairs abruptly with little or no warning.
Contrarians are content with either market direction.

I highlight contrarian investing for both advancing and falling markets: Continue Reading…

Why it’s hard to do nothing in the stock market

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AmanRaina
Aman Raina

By Aman Raina, Sage Investors

Special to the Financial Independence Hub

In every pullback in the stock market, every one of us faces an epic battle with our emotions.  Our emotions are often telling us to do something … anything to minimize the damage that is occurring to our stock portfolios.

Here’s the thing. It’s perfectly normal. As humans, we’re wired for it.

Whenever we encounter periods of stress and adversity, we are wired to search, process, and identify solutions to remedy the problem immediately.  Sitting on are hands and doing nothing doesn’t seem to make it to the top of our list.

Here’s an example that I recently faced. One night my family was at my sister-in-law’s place hanging out. Later in the evening my wife and I received what looked like a long distance call so we both thought it was spam because we didn’t know anyone from where the area code came from.

We moved along.  About a half-hour later I was checking my phone and I saw a number flash up from our home alarm service. Uh-oh. I thought something happened. Ironically I was just at the house to get some PJ’s for the kids and I came back to my sister-in-law’s house when I saw the message. I thought, “did I leave the door unlocked? Did the door blow open and someone ran in ?”

The need to do something … a real-life example

I had a variety of emotions go through me and all of them were involving panic. I told my wife, who then proceeded to ask me if I left the door open or if I activated the alarm. All these questions meant nothing to me at that moment because potentially someone could be in my house trashing it. I was asking my wife what should we do because clearly I didn’t have my wits with me.

We needed to do something. So we called the alarm company and indeed the alarm went off and police were being dispatched. I bolted back in the car and drove like a crazy guy back to the house. I got there. Nothing. The door was closed and locked. I opened the door and inside I could see these balloons from my son’s birthday party float around the house. It must have tripped the motion detector. We were able to cancel the dispatch to the police. All good.

What happened here? I incurred a stressful, emotional moment and instead of staying calm (like my wife), I was jumping around looking to do something because in a way I was feeling helpless and not in control of the situation. This happens to us constantly in investing. When the markets or a specific stock or ETF falls, we feel we have to do something. Sell some of it. Sell it all. We need something to go down to help us regain our security.

Investment coaches can install balance

The reality is times of market stress are times to fully reinforce and execute your investment ideology and investment plan. Instead of feeling woe on the 500-point drop in the Dow Jones Industrials, we need to take control of the situation by not “trading” but instead should be reviewing our Investment Ideology to reinforce the values and criteria we need to implement to make better decisions and we need to clinically and thoughtfully execute our investment plan.  Investment coaches are great at instilling this balance and discipline. This concept of being reactive versus proactive is a nemesis to us all.

Another reality is that market pullbacks are the worst time to start running around the house with scissors in your hand. We will most likely make a panicked decision that will often put our portfolio on a worst footing in the long term.  This tension is engrained in us and it is so hard to overcome for each and every one of us, yours truly included.

So the next time the stocks in your portfolio are falling collectively and meaningfully (It will happen. Count on it), try to resist that pressure to have to do something immediately. Now I premise this with the exception that if a stock of a company is undergoing a negative Game Changer Moment, and the fundamentals of the business model have truly been impaired then you need to take action to preserve your savings.  Just do the homework and due diligence.

Aman Raina, MBA is an Investment Coach and founder of Sage Investors, an independent practice specializing in investment coaching and portfolio analysis services. This blog was originally published on his website on March 21st  and is reproduced  here with permission.