When you learn how to invest in stocks, focus on a strategy that takes advantage of a diversified portfolio of high-quality investments

Do you want to learn how to invest in stocks? We think our Successful Investor method can give you above-average results when you practice it on a consistent basis. Above all, if you think of, and plan, your investments as a portfolio, your results will become more consistent, less time-consuming, and more satisfying than ever before.

Here are some tips on building a diversified portfolio of stocks—taking into account different investing temperaments and risk tolerance.

How Successful Investors Get RICH Learn everything you need to know in 'The Canadian Guide on How to Invest in Stocks Successfully' for FREE from The Successful Investor. How to Invest In Stocks Guide: Find 10 factors that make your investments safer and stronger.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

Learn how to invest in stocks by knowing which sectors to invest in

Our three-part Successful Investor approach calls for diversification across the five main economic sectors, and advises downplaying or avoiding stocks in the broker/media limelight.

As part of their portfolio diversification strategy, most investors should have holdings in most, if not all of these five sectors. The proper proportions for you depend on your temperament and circumstances.

For example, conservative or income-seeking investors may want to emphasize utilities and Canadian banks in their portfolio diversification. That’s mainly because of their high and generally secure dividends.

More aggressive investors might want to increase their portfolio weightings in Resources or Manufacturing stocks.

However, you’ll want to spread your Resource holdings out among oil and gas, metals and other Resource stocks for diversification and exposure to a number of areas.

If you diversify as we advise, you should improve your chances of making money over long periods, no matter what happens in the market.

Here are some more tips on diversifying your stock portfolio:

• When it comes to a diversified stock portfolio, stocks in the Resources and Manufacturing & Industry sectors generally expose you to above-average share price volatility.
• Stocks in the Utilities and Canadian Finance sectors entail below-average volatility.
• Consumer stocks fall in the middle, between volatile Resources and Manufacturing companies, and the more-stable Canadian Finance and Utilities companies.

Learn how to invest in stocks with a plan that focuses on quality

A good general rule to follow when choosing investments: Simple is better. The easier an investment is to explain and understand, the less likely it is to harbour hidden risks as well as costs that can only work against you. As the old investor saying goes, “Stick with plain vanilla.”

The best investment plans or systems use a variation of the value investing approach. That is, they revolve around choosing high-quality investments and diversifying your holdings. Our Successful Investor approach takes that a little further. We advise you to invest mainly in well-established companies; focus on companies that are outside the broker/media limelight; and, again, spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities).

Learn how to invest in stocks: Factors we look at and investing for uncertainty

The factors we focus on—investment quality, portfolio diversification and balance—often have little interest for many beginning or unsuccessful investors. They assume the key to making money in stocks is simple: just buy low and sell high.

In fact, our Successful Investor approach is simple, but not easy. The factors that make a stock attractive are easy to spot. However, many people find it hard to focus on these factors. They feel that success would be much easier if you could simply find a reliable source of market predictions. The problem is that nobody can consistently predict market direction. No one can reliably determine what is “high” or “low” in the price of a stock. But the Successful Investor method gives you a way to live with this uncertainty.

The method gives you a way to build an investment portfolio that generates enviable results when stock prices are rising, and limits your losses when prices fall.

Always use caution before selling high-quality stocks

As a rule, be slow to sell high-quality stocks, and quicker to sell low-quality stocks. That’s because high-quality stocks chosen using our Successful Investor philosophy make better long-term investments. They tend to recover faster from a setback, and are more likely to go on to new peaks.

It’s essential to invest the bulk of your portfolio in stocks that have some history of sales, if not profits or cash flow. If you break this rule and invest in, say, junior mines or tech startups, you should only do so if you have a high opinion of the value of the junior’s assets and/or business plan. You should buy the most speculative of these with money you can afford to lose. After all, you could very well be mistaken about their value. Your low-quality buys might eventually wind up worthless.

What has been the most valuable tool in your investing education?

What was your worst mistake when you were learning how to invest in stocks?