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The secret to successful investing part 2: Long-term investing (Friday, December 23, 2005)

In the last (and, as ironic as it sounds, first) post, I told you that the secret to being a successful investor was dollar-cost averaging. I also briefly touched on the importance of having a balanced portfolio (again, another lengthy write-up, which deserves its own moment in the spotlight). Now, I want to talk to you about the virtues of long-term investing.

I mentioned before that a lot of investors will say "buy low, sell high!" That's a lie. I honestly don't know if a lot of them will say that to you (but just about everyone has got to be thinking that right?). But for most of us, when it comes to investing, we're not doing it to make a quick buck (some of us may be, but there are, believe it or not, those of us out there who aren't a "get rich quick" kind of person). If you are looking to "get rich quick," then what I am about to say does not pertain to you.

Long term investing is, if done right, probably the best way we can prosper from our forays into the dark world of the "market". Buying a stock, fully knowing you don't anticipate selling it for at least ten years, will make you seriously think before you act. And if it doesn't, well then you're either foolish or have entirely too much money (and can afford to take some losses). You'll want to examine very closely any company you are considering purchasing stock in before doing it. And don't just buy stock because it's a company you've heard of. Get to know that company. As a shareholder, you are part owner. So you need to start thinking and acting like an owner. Get to know the company's core business. If you don't fully understand it, then you probably won't be able to successfully determine what value that company will bring you when you are ready to retire.

To invest long-term, you need to start thinking long-term. Instead of following the latest "hot tip", you should be focusing on what will be a hot tip 10 years from now. While no one can accurately predict the future, a little research may lead you in the right direction of finding a company's future.

To be continued...

- Aaron

posted by Aaron and Sarah at 11:42 PM   
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