Just as with clothes, cars, houses, music and, well, pretty much everything else, there is no one investing style that suits everyone. Of course there are quite a few that suit no one, although people tend to gravitate towards these unprofitable, money losing strategies nonetheless – probably because they crave action, get greedy or simply don’t know what they’re doing.

Find the right Stock Market Style that works for you.

But I’m not talking about these methods.

I’m talking about solid strategies that have been proven to consistently make money in the stock market over long periods of time. And that inevitably means some sort of long-term strategy. Forget trading or day trading or technical analysis. You’d likely have better luck peering into a crystal ball and choosing the first stock that pops into your head.

And definitely forget any method that claims it can predict a stock’s short-term movements. It can’t be done. In fact there is no system or person that can consistently predict the market’s short-term direction, and if you think the stock market as a whole moves around a lot, you’ll get dizzy when you see how much individual stocks bounce around.

If you’re invested in the stock market, your portfolio will likely experience swings in value. Sometimes it will swing upwards and sometimes downwards. This is normal. And if you have a long term perspective, it is quite beneficial because it allows you to take advantage of downward swings to pick up great stocks when their prices temporarily sag. On the flip side, it allows you to unload stocks when people are willing to pay you far more than they’re worth.

Most people do the opposite of what they should be doing. When markets are going up, they become embroiled in the hype and buy more and more expensive shares. When markets are going down they panic and sell at a loss. In essence they buy high and sell low. Common sense will tell you that’s not how you build wealth in the stock market.

That’s the reason you need to assess your investment style and choose a strategy that complements it. If you’re not confident your strategy will see you through the rough times, then you’re apt to panic and let your emotions control your actions. And that usually leads to losing money. Sometimes lots of money.

Now, if you’re reading this you should already know you’re ready to invest in stocks. Some people should not invest in the stock market at all. If you worry day and night about losing money or can’t sleep when your portfolio is down ten percent, the stock market is not your cup of tea. Find something safer, such as T-bills or GICs. You won’t have the upside potential stocks give you, but you will live a happier life.

But if you’re willing to take some risk in order to participate in relatively large potential profits, then you should assess how much risk you’re willing to take. Determine how aggressive you want to be. Keep in mind I’m not advocating mindless, bet the house and roll the dice risk, but well managed risk that protects your downside while giving you potential upside gains.

For example, investors who are on the conservative side of the fence should invest in large cap stocks that have a proven history of earnings and pay generous dividends. If, on the other hand, you like to do some research, then Value Investing may be best for you. Today’s value investors really have it good compared to their brethren a few decades ago. Gone are the days and weeks of reading through outdated financial reports in an attempt to find solid companies and calculate their worth.

Now there are computers that will automatically do the tedious, grunt work for you. And access to accurate financial data has never been easier. However value investing still requires some time and knowledge, even with the technical aids available, and certainly requires discipline because you’ll more often than not find yourself going against the crowd. And most people don’t like doing that.

If you’re more of a risk taker, you might even want to learn about options. As with stocks, there are riskier options strategies and safer options strategies.  Combined with a good fundamentals strategy, options can serve to lower your portfolio’s overall risk while increasing returns. For two conservative options strategies see my previous articles Writing Covered Calls and Selling Puts.

Whatever investment strategy you ultimately decide upon, you should prepare yourself psychologically to lose sometimes. No strategy always wins. The key is to know this and focus on managing your risk first and then looking at returns. Risk management tools such as Benjamin Graham’s Margin of Safety idea as well as diversification, asset allocation and prudent money management techniques should all be employed to minimize your losses and increase the probability you’ll effectively build wealth in a consistent manner.

Taking control of your investments allows you to customize your portfolio the way you want in order to achieve the results you need.

 

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