Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment advice. Each Investor Toolkit update gives you a fundamental piece of stock market advice, and shows you how you can put it into practice right away.

Today’s tip: “The value and quality of the stocks you consider are far more important than what the share price happens to be doing at any given moment.”

Stocks go up and down every day. Sometimes there is an obvious cause in good or bad news. But there’s a large random element to stock price changes, particularly over short periods.

Here are two of the most common investment errors:

1. Becoming more “bullish” or optimistic because stock prices have gone up. Some investors only feel safe buying stocks or mutual funds after prices have risen. This is opposite to the way you make most purchases (cars, clothing, etc.) Ordinarily, it’s better to buy when prices go down, not up.
2. Becoming more “bearish” or pessimistic because stock prices have gone down. When other investors sell and drive prices down, you may wonder if they know something you don’t. However, random influences may be at work.

There are many ways to counteract these errors, but the following are five of the best:

Learn all you can about your investments. Read the quarterly and annual reports of companies or mutual funds you invest in. Ask your broker for research reports. Browse the internet (selectively, of course) for news and opinions on matters that may have an impact on your investments. (Above all, subscribe to and read newsletters from TSINetwork.ca!)

Beware of advisor failings. Some advisors are ‘permabears’ — perpetual pessimists. Others are blind to risk, so they recommend speculative stocks at outrageously high price levels.

Don’t try to buy at the bottom, or sell at the top

Take a broad view. Consider earnings, dividends and other factors in making investment decisions. They matter far more than short-term stock-price trends.

Invest consistently. Don’t try to buy at the bottom or sell at the top. (As Bernard Baruch said, “This can’t be done, except by liars.”) Pick out a selection of well-managed mutual funds and/or well-established companies, and invest gradually over a period of years. Plan to hold indefinitely. You can always change your mind and sell if fundamentals deteriorate or your needs change.

Invest in a portfolio. Recognize that some of your stocks are bound to disappoint you. But our three-part Successful Investor portfolio strategy can help you cut risk and profit over a period of years. Here’s how it works:

1. Invest mainly in well-established, dividend-paying companies;
2. Spread your money out across the five main economic sectors: Manufacturing, Resources, Consumer, Finance and Utilities;
3. Avoid or downplay stocks in the broker/media limelight, where investor expectations are bloated and disappointing developments can spur stunning stock-price declines.

You’ll find that these practices will go a long way toward making you a successful investor.

Tomorrow in U.S. Stock Picks we look at an energy firm that aims to profit by getting rid of risky and expensive projects.