Successful Stock Market Investing

When a stock market is not performing well, the tendency is to sell and cut your losses before it’s too late.  This short-term situation needs to be viewed in the long-term context.  Over time, most world stock exchanges have outperformed other savings instruments (bonds, savings accounts, certificates of deposit) over every ten-year time frame.  For example, in the United States from 1940 to 1995, the stock market has been up 43 years out of 56.  In other words, about three out of every four years the market rises. 

Dips in the market are to be expected.  When this happens, resist making panic decisions that you may regret.  It helps to focus on acting like an investor instead of a trader.  A trader is someone who tries to make money on short-term buys and sales by taking advantage of fast changes in the market.  An investor, on the other hand, views the short-term fluctuations in the market as irrelevant and follows a high quality buy-and-hold policy.   

Because we live in a world where success and accomplishments are often associated with an activity or action of some kind, when something isn't going exactly the way we want it to, we feel the need to do something to fix it.  Ironically, when it comes to investing; sometimes the best thing to do is nothing.

The temptation among many investors is to get in quick and then get out quick- taking profits or cutting losses at a moment’s notice.  But by focusing only on the short-term, many investors lose sight of the big picture.  Performance over the long-term instead of short-term gains or losses should be the motivation behind investing.

You need to learn to measure your success against how your portfolio is performing and not against market indexes.  For example, if your long-term plan requires your investments to earn around 12% a year, then it is irrelevant that the stock market index produced 25% or that it was down 15%.  What matters is how your total portfolio is doing.  Check periodically and make sure you are on track.  If not, then make adjustments in your portfolio.  And then ignore the craziness of the market.        

Successful stock market investing has one necessary ingredient that seems to be lacking in many people's psyche, patience.  An oft-quoted saying that bears repeating is, "It is time IN the market, not timing the market that will most likely produce the greatest profits in investing in the stock market."  Patience along with the advice from a qualified investment professional, is the best way to ensure you reach your investing goals.