Here are our best tips and strategies for becoming a successful stock investor

One key thing you need to do to be a successful stock investor is to maintain a balanced attitude toward investment news. You need to stay alert for changes in the investment outlook, of course. But you also need to avoid reading too much into any single news item.

Most people can absorb anywhere from one to a handful of news items at a time. That’s all it takes to create an “aha” moment. But the stock market as a whole continually absorbs, processes and re-processes “the news background”—all the information that’s available. That’s what counts.

Using the “aha” moments and news as a successful stock investor

When you’re just starting out as an investor, you may experience an “aha” or “oh, I get it” moment. That’s when you think you’ve figured out what the future holds for a single stock, or the market as a whole. You may see your newfound analysis as a near-certainty, but that’s an illusion. At best, it’s a prediction, more likely an outright guess.

If you decide to back your guess with a big investment, you can do great harm to your net worth in one of two ways:

If you guess wrong, you’ll lose money right away. If you guess right, you may make a quick profit. But this can lead you into a habit of making big bets on every “aha” moment that comes along. You may get more confident every time you guess right. If so, you may back up your guesses with ever-larger bets.

When you eventually guess wrong—it’s bound to happen—you may lose so much that you wipe out your accumulated profits, plus a big part of your capital.

A single news item can have a big but temporary effect on a stock. However, the totality of all relevant information is what determines the long-term performance of a stock or the market. Most successful investors will tell you that they made most if not all their profits by taking advantage of long-term market moves, some of which lasted decades, or are ongoing.

10 factors to look at with a stock as part of becoming a successful stock investor

Financial factors:

• 5 to 10 year history of profit.
• 5 to 10 years of dividends.
• Manageable debt.

Safety factors:

• Industry prominence if not dominance.
• Geographical diversification.
• Freedom to serve (all) shareholders.

Survival/growth factors:

• Freedom from business cycles.
• Ability to profit from secular trends.
• Ownership of strong brand names and an impeccable reputation.
• Spinoffs are often undervalued stocks in disguise.

Bonus successful stock investor tip: The markets for fungible goods like oil, interest rates and gold are inherently unpredictable

Markets like these are so enormous that there is no practical limit to how much you can trade in them. It follows that if you could predict them, you could wind up acquiring a measurable proportion of all the money in the world, and nobody ever does that. That’s why it’s a mistake to build your portfolio in such a way that you have to accurately predict the future direction of fungible goods like oil, interest rates or gold. The key to being a Successful Investor is to invest in well-managed companies. The unpredictability of the market spurs the need for this rule. Well-managed companies can weather financial downturns and bear markets better than other companies.

The best program for becoming a successful stock investor

To show the best long-term results, we think you should stick with our three-part TSI Network investing program (but keep in mind that this approach is a starting point to success in investing, not a step-by-step blueprint):

• Invest mainly in well-established, dividend-paying companies, with a history of rising sales if not earnings and dividends.
• Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities.
• Downplay or avoid stocks in the broker/media limelight. When stocks spend time in the limelight, they tend to become over-priced, and this leaves them vulnerable to a sharp downturn on any hint of bad news. Instead, look for stocks with hidden value that are less widely recognized—at least so far—as attractive investments.

Are you already a successful stock investor? How did you achieve this? Please share your story with us in the comments.