Learn how to build an investment portfolio for beginners by following these three guidelines for long-term portfolio profits

One key to a long and profitable investing career is to win by not losing. Stick with our three-part investing approach, and resist the temptation to act on impulse, emotion or “hot” tips. Stay out of investments that require extraordinary luck or timing. Likewise for anything that requires you to pay high and continuing fees and brokerage commissions.

Economic problems come and go. But in any reasonably free economy, the long-term stock market trend points upward.

So if you are interested in learning how to build an investment portfolio for beginners and succeeding as an investor, you really need to follow a strategy that lets you find a low-risk way to profit from that trend during the good times, and avoid losing too much of your gains and capital during the inevitable setbacks.

Invest in your Financial Future for FREE Learn everything you need to know in '9 Secrets of Successful Wealth Management' for FREE from The Successful Investor. Secrets of Successful Wealth Management: 9 steps to the life you've always wanted, before and after retirement.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

How to build an investment portfolio for beginners: Understand the “Limelight Rule” to make smarter investing decisions

One key part of our Successful Investor approach is our “Limelight Rule”: Downplay or avoid stocks in the broker/media limelight.

This is a basic portfolio-construction principle. Heightened attention from brokers and the media is a poor guide to investment profits. In pursuing their own interests, brokers and the media both tend to zero in on fast-rising stocks that have an appealing story and the potential for huge gains.

The brokers want to attract short-term stock traders who spend a lot of money on brokerage commissions. They also want to build warm relationships with companies that attract short-term traders. These companies tend to have ambitious growth plans, which means they are likely to want to sell new stock and bond offerings to investors, a source of even greater broker profit than trading.

The media want to attract readers and viewers, who can help sell advertising and subscriptions. This gets harder all the time, as growing online media competition drives down advertising rates and subscription sales.

This cooperative broker/media arrangement comes about naturally, as a product of human nature. There’s nothing disreputable or unscrupulous about it. Brokers and the media are business people, and both focus on what’s good for their businesses. Their interests tend to intersect in the limelight. You need to be aware, however, that their joint interests conflict with yours.

Investors generally are interested in media and brokerage commentary, and some see the broker/media limelight as a great source of investment ideas.

Successful investors, individual and professional, also take note of “limelight stocks,” but they bring an extra tool to analyzing them: a healthy sense of skepticism. They continually think about how these stocks can fail to thrive, and what it will cost investors if that happens.

Brokers and the media touch on this subject as well, but more as a side issue than a focus of concern. Risk expands when the limelight exaggerates the investment potential of a company, or downplays the obstacles to its success.

You can of course make money on limelight stocks, if you get in early. But nobody can predict when “early” ends and “too late” begins. By the time a stock gains a place in the limelight, much of the easy money has already been made.

How to build an investment portfolio for beginners: Focus on stocks with hidden or little-noticed assets to profit

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.

How to build an investment portfolio for beginners: Follow a steady, middle-of-the-road approach to lower your risk

This comes naturally as you develop a Successful Investor mindset. A steady, middle-of-the-road approach offers better odds than erratic or extreme alternatives. That’s because it relies less on timing, or on guessing right about the future. Instead, it helps you take advantage of what you might think of as the laws of financial physics.

You still have to decide what stocks to buy and what stocks to sell, and some of your decisions will disappoint you. But with a Successful Investor approach, your best choices will produce a lot more profit over long periods, and will overwhelm the costs of your disappointments.

Every investor, including beginners, should use our three-part Successful Investor approach to build a diversified investment portfolio

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

How has your investment strategy changed throughout your investing career?

What would you say is one of the most important tips for beginners learning how to build an investment portfolio?