Making Money Consistently In The Stock Market

Posted on February 11, 2009 @ 2:16 am
by Gail Fredericks

All the investing greats, be it Peter Lynch, John Singleton, or Warren Buffett, are considered greats because they not only made money in the stock market, but they made it year in, year out because they approach it with a long-term view. People who are just looking to make a killing in the short term often end up losing their shirt and then some. This is not what this article is about. If you want to learn about how to be a long term winner in the stock market, read on.

1. Set your goal. Take your personal factors into consideration to come up with the type of portfolio that best suits you. Then analyze every potential investment by thinking about what you want out of it and whether or not it fits into your overall investment plan. Just like a sports coach, have your X’s and O’s ready, don’t react to the market. This will save you a lot of headaches and money.

2. Choose a strategy. There are literally thousands of investment tactics and strategies out there, and an equally high number of books detailing each one of them. Trying to follow several is counter-productive, not to mention confusing. Your best bet is to pick one that’s the best fit for your financial goals and stick to it. Sure, there will probably be moments where you have to do a little tweak here and there but or the most part, the simpler your playbook, the more smoothly the game plays out.

3. Assess possible risks. Your ability to assess the risks your investment carries will be critical to your success. The key here is to look at them realistically, not with wishful thinking. Your management plan must be as effective and practical as possible in order to minimize your losses and in turn maximize your profits. This step is to be completed BEFORE evaluating profit potential, to avoid you getting so excited about your potential profits that you fail to properly evaluate the risk you’ll be taking.

4. Gauge profit potential. Based on the profit potential of your investment, you should be able to determine price points where you sell and get out. One of the biggest hurdles for novice investors is knowing when to get out of an investment. They eventually wait too long and lose some of their on-paper gains.

5. Look for other options. You can look around and see if there are any comparable (or better) investments in therms of risk, profit potential, or simplicity of management. This little extra step can simplify a lot of things for you, not to mention make you some extra money in the long run.

6. Evaluate the hurdles. This falls right in line with having an initial strategy that you follow from the beginning. Every time you consider an investment, it will bring about its very own unique characteristics, and its risks. If you have already gone through the process of anticipating those risks, you stand a much better chance of minimizing the risk of losing money.

7. Draw up your plan B. Your plan B should dictate what you do when things don’t go exactly as planned (in either direction). You shouldn’t have to be deciding on the fly when it’s time to get out of an investment, it should all be laid out and you should be responding to certain criteria, not to panic or elation. This helps you avoid losing on potential returns or better yet, helps you avoid losing more money than you’ve already sunken in a losing investment.

8. Choose the right investments. Investing takes time, so for one last time look over your new project as a whole. Now you’ve got all the pieces to see the puzzle as if it was completed, and can determine if this investment is really worth your time and effort. And if it isn’t, there’s no need to dwell on it: starting a new plan is certainly less painful than losing a couple thousand dollars because of an ill-advised investment plan.

9. Aim high. So your mind is made up on an investment, right? Well then just go for it and stop over-thinking things. You’ve done all the thinking you needed to in the previous steps. As corny as it sounds, if you give everything you got, you’ll be a winner regardless of the monetary outcome. Even if you lost money, you won’t have lost that much because you’ve learned to hedge your bets. All you have to do is following through on your game plan and the long term benefits will follow.

10. Debrief. At set intervals, go over your plan. If a couple of missteps here and there cost you a lot of money, try to identify them and make sure that you don’t keep repeating them. Don’t give up: we learn more from our failures than from our successes. Hang in there, make small changes; keep what works and discard what doesn’t until you all your personal success ingredients come together and you carve out your very own formula for stock market riches.

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