If you think your investing skills need polishing, you’re not alone.
Most of us have made our share of mistakes as we go about our investment journey.
Unfortunately, losses are part and parcel of being an investor.
Hence, it is no wonder that most investors have a constant desire to up their game.
Becoming a better investor is akin to learning a new sport.
The learning curve starts steep initially but as time goes by, practice makes perfect.
If you have a burning desire to improve your skills, here are four pieces of advice to help you along.
1. Do not expect instant profits
Probably the worst thing you can do is to invest with the expectation of quick gains.
This “get rich quick” mentality is associated more with gambling than investing.
Instead, prudence should be the order of the day as you seek out potential risks relating to the investments you make.
Time is needed for great businesses to grow their revenue, net profit and cash flows.
As the saying goes — Rome was not built in a day.
Great companies such as Starbucks (NASDAQ: SBUX) and Nike (NYSE: NKE) both started small but have since grown into billion-dollar behemoths today.
The key is to have the patience to wait for the rewards.
A business that grows its profits and dividends over time becomes more valuable in the eyes of investors, thereby it will be accorded a higher share price.
As a long-term investor, you’ll be able to enjoy both capital gains and a steady stream of passive income.
2. Be prepared for surprises
Earnings are the main driver of share prices over the long term.
Listed companies must report their earnings either quarterly or half-yearly.
As an investor, you should be prepared for surprises such as when earnings fall short of expectations.
When this happens, the share price could take a sharp tumble, especially when there was a lot of optimism swirling around the stock prior to earnings.
In this context, handling bad news is part and parcel of being an investor.
Just as in life, not everything goes smoothly all the time.
Companies may also periodically drop bombshells such as the loss of a major client or being hit by a major lawsuit.
The important thing is to take the news into context.
If earnings fall short for just one or two quarters, there is no reason to panic.
Check your investment thesis once again and if it is still sound, you may even wish to buy more shares when they suffer a plunge.
3. Stop trying to time the market
Timing the market for that perfect entry or exit is a futile exercise.
The stock market is the culmination of the thoughts, desires and emotions of millions of people.
The result is that share prices react according to the news of the day, and in the short term, are driven largely by sentiment.
If you are attempting to buy a well-run business, there is no need to agonise over the “right” moment to own it.
Time will smoothen the volatility and over the long-term, share prices follow the trajectory of the business.
As legendary investor Warren Buffett says — if the business does well, the stock price will follow.
It’s foolhardy to try to look for the best possible moment to buy because no one can accurately predict the daily movement of share prices.
What you should focus on are the fundamentals of the business you intend to buy.
If you are reasonably confident that the company can grow its revenue and earnings five or 10 years from now, then it will not make a big difference when you buy its shares.
4. Don’t beat yourself up over mistakes
The most important advice of all is to not beat yourself up over investment mistakes.
Even Warren Buffett routinely admits to making errors of judgement that cost his company, Berkshire Hathaway (NYSE: BRK.B), millions of dollars.
If you keep agonising over a mistake, it can hinder your progress and hold you back from making another investment.
The wise thing to do would be to file the mistake as a learning experience, absorb the lessons from it, and soldier on.
By classifying a mistake as a learning opportunity, you can turn an otherwise unpleasant experience into one from which you can benefit.
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Disclaimer: Royston Yang owns shares of Starbucks and Nike.
