Tips For Investing in 2018
Happy New Year and thanks for checking out The Seville Report. Every new year, lots of people put “invest” down as one of their New Year resolutions. So we put together a few tips to help any level of investor. Whether you're an experienced investor or new to investing these tips will help you be a better investor in 2018. So lets jump into it.
Acquire and Use Good Information.
Before you hit the buy button on a stock, make sure that you’re doing some form of research on your own. In your research be sure to use the best information available to you. And no matter where you're getting your information, try to verify it by cross checking it with other sources. For investing, good information in, equals good results out. There are a lot of places to get information regarding investing and investments, like a company’s website for instance. If your interested in Google, going to Google's investor relations page can provide you with a lot of useful information. There you can find annual and quarterly reports among other things. Another good source of information is Seeking Alpha. At Seeking Alpha you can find articles written by individual investors and professionals on hundreds of companies. If I really love a company and its stock, I’ll go to Seeking Alpha just to read articles on why the company I like is a bad investment idea. It's a good place to get different perspectives on an investment idea.
Riding Through the Down Cycle.
A lot of new investors get shaken out of good investment because the stock is trading at a lower price than when they made their initial investment. So how do you get past this? By reminding yourself why you made the investment. You should always know why you made an investment in a company and as long as that reason still exists then there is no need to be shaken out of your investment if it decreases slightly.
Don’t Follow The Herd
The herd buys at the high and sells at the low. The herd is always late to the party, and loses money because of their fear of missing out. Good investment opportunities present themselves almost weekly. There is no need to jump into something because that’s what every one else is doing. Good investors get in before the herd, they buy, they accumulate, and then they reap the benefits when the herd jumps in.
Ask The Right Questions
This is something that really separates the successful investor from other investors. Questions like “How much did you make?” or “How much can I make?” those are a few of the wrong questions that people ask. “What are the reasons to make this investment?” “What makes this investment better than others” “Does the company have a competitive advantage over its competitors?” these are examples of good questions. If you make good investments the money will follow, but to make a good investments you have to ask good questions and get good information.
Whether you're investing on your own or you're letting a broker do it for you, try to learn something investment related every month. It doesn’t have to be something that requires hours of reading and research, it could be something simple like, “What is a P/E Ratio and why is it important to know regarding investing?” or “what is EBITDA, and why is it important to my investments?” A site like Investopedia is great for learning something investment related. It offers you the answers to your questions and provides direction on what you may want to learn next. Like anything else, as you learn and understand the basics, the more difficult concepts start to click for you as well.
Investing is a marathon not a sprint. There isn’t a single investment that is going to take you from the out house to the penthouse overnight. Investing is a long game, where little becomes big, pennies become nickels, nickels turn into dimes, dimes into quarters, quarters into dollars, etcetera.
Don’t Set it and Forget It
When you purchase a stock you should have a fundamental reason for the purchase. Too many investors forget to check on that fundamental reason throughout the year or throughout the time they hold the investment. This results in winning investments turning into losing investments or stagnant stocks turning into losers. You don’t have to look and analyze your portfolio every day, but you should review it every 3-4 months. You want to make sure the reason you made the investment still exist. If you've invested in a drug company because of a revolutionary drug the company has developed, you want to check every to 3-4 months to see if the company you invested in is capitalizing financially off of the revolutionary new drug. Simply, you want to make sure the reason you purchased the investment is still valid.
A Good Company doesn’t equal a Good Stock
This is a concept that can take a while to understand. It relates to understanding value and how to value a company. Essentially what this means is that a company you like may be doing really well in business, and professionals investors and analyst may value the company at $5 billion, but the company’s market capitalization, its stock price multiplied by the number of outstanding shares is $15 billion.
Company Value Determined by analyst = $25 per share x 200 million shares = $5 Billion.
Market Value = $75 per share x 200 million shares = $15 Billion.
So while the consensus is that the company in question is a good company, professionals don't believe the company’s stock is worth $75 per share. In this case you have a good company, but not a good stock. The stock is trading above its value, which is good for investors who purchased it early, but not a wise investment for someone who wants to purchase the stock now.
To be clear, valuing an asset or an investment is subjective, almost every analyst and investor values an asset differently. A good rule of thumb for beginners is to use the P’s, Price-to-Earnings, Price-to-Sales, Price-to-Book Value, and Price-to-Cash Flow. An investor can compare the P’s of a company to the Ps of the industry or sector that the company operates in. If the company’s P’s are below the industry and sector averages then the company is believed to have value.
So these are just a few tips for someone looking to invest or starting to invest. If you're an experienced investor and you feel we've missed something let us know, and if your someone who is just starting to invest and wants to know more about something let us know.
Good luck, may your next investment be your best investment.