What, exactly, separates the rich from the poor? Those who continue to grow their fortune almost always take a different path than the rest of the investing crowd.
Here is a list of how to invest successfully and differently to the crowd
1. Tolerate Risk
An investor’s tolerance for risk is a good indicator of his chance for building wealth. There has to be some tolerance for risk in order to make a meaningful amount of money in a reasonable amount of time. Tolerate risk, take a few chances and you might end up investing “house money” in the near future while other more conservative investors are still waiting to make an initial profit. An overly-conservative approach to investing equals to sitting on the side-lines and doing nothing. Embrace risk to a certain point and you will be on your way to compounding wealth.
2. Do not take advice from mass media
Those who fail to achieve investing success often allow outside forces to strongly influence their decisions. The successful investor is more self-righteous, focused and careful when it comes to investing. Ask any successful investor about investing in a business featured in the public spotlight and he or she will likely state by the time it is on the news, the opportunity is gone.
3. Use Contrarian Strategies
Contrarian investors almost always do the opposite of what the investing masses do. It works, if applied in a careful and timely manner. Those who can separate fact from hype capitalize on over-eager investors and novices looking to make a quick buck by riding the wave. Keep an open mind to the contrarian investing strategy, recognize the fact that the investing world is rife with followers and you just might make a substantial amount of money.
4. Shrug Off Investing Tips
Those who have had their own success as an investor are less inclined to follow the advice of so called “experts”. Investment tips are a lot like opinions: everyone seems to have one! The lesser successful are more likely to consider investment tips handed out by supposed experts only to lose their money. Don’t assume another person’s information or research are accurate. Break free from the pack and think critically before investing your hard-earned savings.
5. Determine Value
Defining value is not easy. Value has different meanings to different people. Value is typically thought of as the stock price in relation to the total number of shares. But value can mean a business’s price to earnings ratio (P/E ratio), price to cash-flow ratio and price to book value ratio.
These ratios account for important fundamentals. These numbers are especially valuable when comparing companies that do business in the same industry. The ratios can be compared against competing businesses as well as the industry average.
Make prudent use of these tools, and you will be able to identify lucrative opportunities for overlooked value or even discover when a company is overvalued.
6. Take opportunities
If a stock is beaten up well beyond reason or a business is considered heavily undervalued, plenty of successful investors will consider to take advantage of such temporarily undervaluation or a possible “dead cat bounce”. This term refers to a battered stock left for dead that ultimately bounces back to life, even if only temporarily. This is just one example of how tolerating risk can pay off in a big way. Take advantage of such opportunities.
Sven Franssen