What You NEED to Know to Be a Successful Investor

Steve's note: It's funny how a lifetime of knowledge can be distilled into a few simple ideas. I've worked in the investment world for nearly three decades. But the essay below shares the majority of what I've learned in just nine main points. If you can follow these simple ideas, you'll quickly become a better investor...


"Steve, I'm just trying to get all this stuff figured out," my friend Charlie told me. He's just starting out in investing.

"I'm paralyzed," he said. "I don't know what to do. I'm reading everything... But I'm not actually doing anything with my money."

"Charlie, you're doing the right thing," I said. "Learning first – and not doing anything stupid with your money – is exactly the right thing to do."

Charlie is not alone...

I'm sure many of our readers are in a similar situation. So I'm going to cover some of the important basics of successful investing.

These are helpful for both beginning and seasoned investors... They're a great reminder about the most important things to understand when it comes to the market.

  1. You aren't going to get rich overnight through investing.

A proper investment is one that has at least a two-year horizon. Said another way... Any investment that can double your money in a month is likely risky. You could lose all your money just as quickly. If you don't adjust your thinking in line with this, chances are you'll end up losing a lot of money.

  1. Start small. That keeps your investing "tuition cost" low.

I don't mean "tuition cost" in the traditional sense... I call your "investing tuition" the money that you inevitably lose on your first investments because of something you didn't know or understand. Start small, and keep that tuition cost low.

  1. Don't invest in something you don't understand.

One of the fastest ways to lose money is to put your funds into something you don't really understand. If you don't understand how you'll make money on the investment – and you can't point out your risks – you are not ready for that investment. Go study some more. And if you still don't understand, simply skip that investment.

  1. What's a good return these days?

Is 5% a good return? In 2003, 5% was a bad return... But when banks are paying near-0% interest and Treasurys aren't much better, 5% is (sadly) a good return on your safe money. Any more than that and you are taking on real risk.

  1. Don't put all your eggs in one basket.

Don't put your entire net worth in one property... And make sure you spread your stock holdings around as well by first investing in funds that hold a bunch of stocks. Something like the SPDR Dow Jones Industrial Average Fund (DIA) – which holds 30 stocks, including Apple, Johnson & Johnson, Wal-Mart, and Microsoft – is a good, "one click" way to own a basket of stocks.

  1. History repeats – or at least it rhymes.

It's amazing how investors never learn that history repeats. The 2007 to 2008 bust in property prices is a good example. In 2006, people thought property prices could never go down. Two years later, people thought property prices could never go up. The truth is somewhere in between.

Keep in mind... you want to SELL an investment when it's expensive and everybody loves it (like housing in 2006). And you want to BUY an investment when everybody hates it (like housing in 2008). But even more important is this...

  1. Don't fight the trend.

To increase your odds of making money, you don't want to try to catch a falling knife. That is gambling, not investing. Instead, it is much safer to grab that knife once it has hit and settled a bit. In other words, don't buy a stock that is going down. Instead, buy something that has started going up...

  1. Cut your losses early.

There's no better way to prevent massive losses than to set – and stick to – an exit strategy on every investment you make. It's the simplest thing you can do to continually increase the value of your portfolio. The best way to do this is a "trailing stop."

  1. When in doubt, don't do it.

If you have any doubt about putting your money into a new investment... don't do it. Instead, keep reading and learning. That keeps your investing "tuition cost" way down!

These are rules to live by. And they're not just for beginners. Every investor – experienced or novice – should stick to these rules.

As for my friend Charlie... by reading and researching first – and not putting money to work yet – he's made all the right moves.

I urge you to follow Charlie's lead. Learn as much as you can about the markets and investing. Follow these rules. And you should be successful...

Good investing,

Steve

Editor's note: Right now, one of our analysts is revealing the only trait shared by the top stocks of the past 30 years. It's the secret that has helped him run the single most successful stock research service we publish today. (Earlier this month, the average stock in his model portfolio was up as high as 112%... That's more than double your money!) Learn all about this lucrative strategy right here.

Further Reading

"How do you know you're making 'A+' investments in your portfolio?" Austin Root writes. To know if you're hitting the mark, you have to be able to gauge your investment performance. And three steps will help you do just that... Learn more here.

"A lot of people trade stocks like they're renting them," Austin says. Instead, you should aim to fill your portfolio with high-quality businesses that you understand... and would be happy owning for the long term. Read more here.

Market Notes
THIS VIDEO-GAME MAKER REACHES NEW HIGHS DURING THE PANDEMIC

Today, we’re checking in on a company that has been keeping folks entertained from the safety of their homes…

Even though some states have let bars and restaurants stay open, COVID-19 continues to keep much of the world on lockdown. People are still looking for safe and fun activities as we enter the new year. Today’s company is providing this at-home entertainment…

Activision Blizzard (ATVI) is a $70 billion video game publisher. As we’ve noted before, its franchises include popular series like Call of Duty, World of Warcraft, and Candy Crush. With folks stuck at home, this company has enjoyed a solid boost in sales… Quarterly revenues recently hit $1.95 billion – up 52% year over year. And Activision expects 2020 to be its best year ever, thanks to successful releases of World of Warcraft Shadowlands and Call of Duty Black Ops Cold War.

As you can see, shares of ATVI are up roughly 130% over the past five years, recently hitting a new all-time high. As folks keep looking for socially distant activities in the new year, Activision Blizzard’s video games should remain in high demand…