Is now a good time to invest? The answer? It depends.
Why shall you start investing right now?
In spite of the down and up markets, this is always a good time to invest. Actually, you probably should have invested last night. Why? Because each day you invest your money, you’re more likely to make money off your investments.
Why should you not invest today?
Because investing is not for everyone, nor is knowing how to cook, paint or run marathons. There are things that not everyone can do, we are all different and certain things in life, like investing, demands certain must-have requirements.
Before investing, make sure you have these three requirements
Prior to listing out all requirements a successful investor must have to make money, let’s start with a necessary preface.
Easy profits do not exist, or they can play in the short run to eventually fade or convert into losses in the long term.
Before diving into the specifics, we shall introduce another concept strictly connected with the intelligent investment doctrine.
Great investment opportunities, capable of generating double-digit consistent returns and everlasting even during downtimes and recessions, are great as such because (at the time of purchase) they are cheap or undervalued compared to their intrinsic value.
Excellent investments are those that are either undiscovered or out of favour by the financial community.
However, this also means that it may take time before the stock is uncovered and the price starts going up towards its intrinsic value or above. There might be instances where the price can drop further and may require months or years to recover to prior levels.
Let’s now proceed with a concise and clear list of the requirements you must have if you wish to become a successful investor.
1. Invest only money you will not need during the next 3 to 5 years
An investment horizon of at least 3 to 5 years is the number one investing requirement.
You can read this useful article to understand more about types of investment horizons and portfolio management.
No investment is risk-free. You’re putting your money into something you believe will go up in value, but there are no guarantees. You’ll be exposed to the uncertainties of the markets, which means the value of your investment can and will jump around, so you could get back less than you put in.
If you have an expensive debt to repay, foreseen or possible unforeseen expenses that would leave no extra “rainy day” funds available, you should not invest at this stage. Liquidating investments at a time of falling markets could lead to losses in the short term.
2. Do not approach the market unless you are willing to think about stocks, first and always, as part-ownership interests in real businesses
Investing does not mean speculating, we talked about it far and wide in our blog.
Think about investments, first and always, as concrete part-ownership interests in real businesses. By doing so, thanks to your savings, you may become an entrepreneur without having to work – your money must work for you, that’s the goal.
3. Accept the need to acquire the right temperament and personality to become an intelligent investor
You should have a strong mindset to not fall into the bipolarism of Mr Market, whose movements are the results of human being psychology, who are either extremely optimistic or extremely pessimistic – there is no middle way. All the forces influencing mass psychology can significantly impact the general level of stock prices.
In the short term, interest rate variations, inflation and several other macroeconomic factors may affect a stock price. Still, as soon as the time horizon broadens, the intrinsic economic characteristics of the assets in question will have a much more significant impact on the share price formation.
The message shall be clear: what matters, in the long run, is a company’s actual underlying business performance and not the investing public’s fickle opinion about its prospects in the short run.
If you cannot stand a possible severe drop in value of your holdings and you are tempted to get rid of all your investments because they are in red, investing is not for you. As simple as that.
It is during down periods that most of the opportunities arise. So, you should not be afraid of buying during a war scare; on the contrary, you must be ready to tap into more money and start buying more if you can, if this does not contradict the abovementioned point 1.
Training oneself not to go with the crowd but to be able to zig when the crowd zags is one of the most important fundamentals of investment success.
Remember, you should not be influenced by short-term price fluctuations. What matter is the strength of the underlying business and its potential for future earnings and cash generation – the fair value of a stock depends on its ability to generate profits consistently, and the market prices in the long term always depend on this.
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