Topic: How To Invest

Investing for beginners

We’ve got four key Successful Investor investing for beginners tips that will help you profit from stock investing with less risk.

No matter how widely or narrowly you cast your information net, some of your investments will disappoint you. But that won’t matter if you apply these three tips. That’s because your near-inevitable gains will overwhelm your all-but-unavoidable losses.

Successful Investor Investing for beginners Tip #1: Hold mostly high-quality, dividend paying stocks or mutual funds that hold those stocks


We think investors will profit most — and with the least risk — by buying shares of well-established companies with strong business prospects. These are companies that have strong positions in a healthy industry. They also have strong management that will make the right moves to remain competitive in a changing marketplace.

A long-term record of dividends provides a measure of safety for investors. Dividends, after all, are much more stable than earnings. More important, dividends are impossible to fake — either the company has the cash to pay dividends or it doesn’t.

That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established stocks have the asset size and the financial clout — including solid balance sheets and strong cash flow — to weather market downturns or changing industry conditions.

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Successful Investor Investing for beginners Tip #2: Keep your portfolio well-balanced among the five economic sectors


Remember to spread your portfolio out across the five main economic sectors: Resources; Manufacturing; Finance; Utilities; and Consumer. That way, you avoid overloading yourself with stocks that are about to slump simply because of industry conditions or changes in investor fashion.

By diversifying across the sectors, you also increase your chances of stumbling upon a market superstar — a stock that does two to three or more times better than the market average. These stocks come along every year. By nature, their appearance is unpredictable; if you could routinely spot them ahead of time, you’d quickly acquire a large proportion of all the money in the world, and as we mentioned earlier, nobody ever does that.

Successful Investor Investing for beginners Tip #3: Downplay or avoid stocks in the broker/media limelight


That’s because these stocks tend to develop exaggerated investor expectations – especially those of inexperienced investors. When these stocks fail to live up to those expectations, declines can be steep. Broker and media attention tends to build investor optimism and push these stocks up to relatively high prices. If the market weakens or if they run into internal difficulties, these stocks can drop sharply, so it’s a good idea to limit your exposure to them.

Successful Investor Investing for beginners Tip #4: Focusing on including stocks with hidden or little-noticed assets


These are assets that are easy to overlook, since their full value rarely appears on a company’s financial statements.

These assets include long-time real estate holdings that are worth much more than the balance-sheet value. Under-used brand names are another good example. Another key hidden asset — is research spending. Companies write off their research outlays in the year in which they spend the money, but benefits (if any) such as new or better products may only materialize years in the future.

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