Have you a long-term financial goal? You may want to build an investment pot so you have a comfortable retirement. Or you might be thinking about your children’s future. Whatever your goal is, being a successful long-term investor can make all the difference to you and your family.
But if this is your dream, how can you achieve it? Well, these are my secrets to reaching your long-term financial goals.
Recognise trends
Many people think that investing is basically picking a few well-known blue chip companies. But there is a lot more to it than that. Understanding, recognising and investing in trends can make all the difference to your portfolio.
Think of some current trends and you will understand what I mean. One of the most dramatic trends of the moment is the end of the commodities supercycle. Oil, gas and metals prices are tumbling. This means you should be taking profits on companies such as Shell and Rio Tinto, and should avoid investing in this sector. Likewise, you should be buying into companies that are benefiting from low energy prices, such as IAG, easyJet and Volkswagen.
Stay in control of your emotions
It’s amazing how people seem to invest as much of their emotions as their money in shares. If a share price shoots up they are elated; if it slides they are down. But I have learnt a long time ago never to be emotional about my investments.
You have to be in control of what Steve Peters calls your ‘inner chimp’. If you have a view about the strengths of a company, then that should not be affected however the market swirls around you. Think of yourself as the lighthouse in the storm.
Be contrarian
Being contrarian sounds easy, but, believe me, it isn’t. Being contrarian is more than just buying into a company because its share price has fallen. After all, if the share price has fallen a lot it may mean that the business is actually in serious trouble, in which case you should be steering well clear.
Being contrarian is really about buying into a company when the market is seriously undervaluing your view of what the company is worth. Think of buying into Barclays and Lloyds at the time of the Eurozone crisis. Or buying into Quindell in December of last year, when it was making astonishing amounts of money, yet its share price was plumbing the depths.
But if the prospects of a company have worsened, or if it is fighting against a trend, or it is just not making any money, then this is not a contrarian buy at all, and you should avoid investing.
At the end of the day, the fundamentals of a company should be your guide, not its share price.
Seek out winners
Many successful investments are not contrarian plays at all. Think of chip maker ARM Holdings. This firm’s share price has just risen, and risen, and then risen some more. Why? Because it is a one of the tech winners of the 21st century. To design, and own the intellectual property of, just about every chip in every smart phone, tablet and smart watch on the planet is quite some feat. It is no surprise the company is so highly valued.
Be patient
Warren Buffett has said many a time that, in the short term, the market is a voting machine but, in the long term, it is a weighing machine.
Share prices fluctuate all the time. You need to look through the noise to understand what the long-term prospects of the company are. If the firm is growing revenues and profits steadily then, at some point, the share price will follow.
Know your own limits
You know what strikes me most about Warren Buffett? His self-effacing modesty. He still works in the same, rather run-down office in Omaha, Nebraska. He still lives in a 5 bedroom suburban detached house.
He will just as often tell you about his weaknesses as his strengths, including the fact that he never invests in tech, and he never invests in things he can’t easily understand.
How, I hear you ask, can a man with so many weaknesses be one of the world’s greatest businessmen? But, you see, you are looking at things the wrong way.
It is exactly because he is so aware of all his weaknesses that he is the world’s most successful investor.