Things can get pretty confusing for investors when it comes to the stock market. Most of them find it challenging to determine which stocks are great long-term buys and which ones are not. If you’re trying to figure out how to make a winning long-term stock pick, you’ll need to apply the following tips:
Go for Stocks Based on Your Personality
Did you know that your personality type has a lot to do with the types of stocks that you’re planning to trade? For instance, if you’re someone whose fast mind needs to have plenty of action to stay focused, you might want to consider short-term and aggressive scalping. However, if you’re a little older and someone who tends to think everything through before you make an important decision, then perhaps you’ll do well with swing trading low volatility stocks. Regardless of your decision, you’ll need to understand that the price movement of stocks has various levels of volatility and velocity. It’s best to make use of certain tools that can help you identify the type of stock that is appropriate for you.
Keep an Open Mind
In case you’re not aware, there are many good investments out there that lack brand awareness. Although many big companies are household names, you may be surprised to find out that countless small companies could become the next blue-chip names in the near future. As a matter of fact, history shows that small-caps stocks have proven to yield greater returns compared to their large-cap counterparts. However, this doesn’t necessarily mean that your entire portfolio should be solely devoted to small-cap stocks. The key is to keep an eye out for companies beyond those that you see in the Dow Jones Industrial Average.
Don’t Accept a Stock Tip as Valid
It’s extremely important to avoid chasing a hot tip regardless of the source. Instead, make it a point to do your own deep-dive research and analysis on a specific company before you decide to invest your money. Keep in mind that if you’re aiming for long-term stock pick success, you’ll need to do your homework.
Pick a Specific Approach and Stick with It
If you vacillate between different strategies and approaches to picking stocks, you’ll find yourself treading on thin ice. Doing so will effectively turn you into a market timer or someone who dangerously moves in and out of the financial market based on predictive methods. When you’re trying to make a winning long-term stock pick, you’ll need to stick with a single philosophy.
Don’t Place Too Much Emphasis on a Single Metric
While many investors overemphasize on price-earnings ratios, experts say that this isn’t always a good idea. Metrics such as P/E ratios work best in conjunction with other analytical processes. In other words, when the P/E ratio is low, it doesn’t necessarily follow that security is undervalued. Conversely, when the P/E ratio is high, it doesn’t mean that a particular company is overvalued.
Remember that Penny Stocks are Risky
You’ll have to resist the lure of penny stocks because they’re riskier than high-priced stocks due to the fact that they’re less regulated. Unfortunately, a lot of people fall prey to the misconception that they’ll have less to lose with low-priced stocks. The truth is, it doesn’t matter if your $10 or $75 stock dives down to $0, you’ll still be in a position where you’ve lost 100% of your initial investment.
Have a Long-Term Perspective
Most market neophytes find short-term profits to be more enticing than long-term ones. However, if you’re aiming for greater success, you’ll need to understand that long-term investing is the key to your goal. Plus, there’s less risk in using buy-and-hold strategies than active short-term trading.
Don’t Worry Too Much About Taxes
Did you know that investors can make misguided decisions when they put taxes above all else? While it’s true that you should be concerned about tax implications, these are only secondary to investing and growing your money. Remember that your goal is to achieve high returns. Striving to minimize tax liability comes second.
Be Realistic About Poorly-Performing Investments
A stock that’s had a protracted decline doesn’t always rebound. Keep in mind that there’s no shame in acknowledging losing stocks. Instead of focusing on the failure, it’s best to stem further loss by selling off your investments. As you consider a stock on its own merits, try to determine whether its price justifies its future potential.
Do You Want to Take Your Portfolio to the Next Level?
With all the uncertainties riddling the stock market, it can be tricky for investors to make decisions based on things that have yet to happen. Are you interested in learning how to trade stocks? Perhaps you’re just starting to build your portfolio or you’re an experienced investor who’s looking to make powerful stock picks. With the #1 stock-service in the world by your side, you won’t have to worry. For over 20 years, Gorilla Trades has been serving thousands of investors, stockbrokers, and fund managers. Contact us today to learn more about the services we offer.