You are the proud owner of shares. An investor in some fabulous company that regularly pays its dividends. You see your portfolio grow until suddendly the world panics, news outlets predict the end of the world, doom sayers find their stage, news anchors overuse the terms correction and bear market, and while you were just a confident investor, an owner of some awesome company, you suddendly find yourself in doubt about what to do in a bear market - this also applies to what to do in a bull market.
Should you sell your shares, check the market every five minutes just in case some new news is driving shares further down? Maybe invest more money and buy cheap while everyone else is panicking?
Here are ten things that I have learned over the last twenty five years as both an investor and analyst that will help you make better choices when investing.
1. Don’t panic
Back in 2008 when the financial crisis hit, panic took hold of the markets. In fact, the entire world appeared to be on fire. Some even spoke about the end of civilization. Turn the clock forward and we are seeing historic highs. Of course the next downturn is as certain as the rise of the sun tomorrow morning, but just as the sun sets at night, it will shine its rays again a few hours later. Every downturn is followed by an upturn.
2. Stop checking the market every five minutes
The market is affected by so much. From macro-economic data to political news. The stock market is strongly based on mass psychology. If you check the markets constantly, and you are not a day trader, you will only drive yourself mad. If seeing a red sign in front of your market price affects your mood, don’t look at the prices. And what good will it do? You are much better off to check from time to time, unless you simply enjoy looking at share prices or are in the process of buying or selling.
3. Think of yourself as a business owner
This really helps when the market runs mad. Regardless of some crazy trade conflict, a politician tweeting, a TV presenter announcing the end of the world, if you think of yourself as a business owner, you will find these unnecessary noises much less irritating.
4. Don’t have others throw you off your game
Now you have made the decision to buy, feel proud: You have entered the world of investors. It may always happen – you go to a party and someone tells you about all these things they have heard about the company. If you have done your research, don’t let their negativity throw you off your game. You are, remember, a proud business owner, who has done the necessary research.
5. Do read the AGM notes
As a shareholder you will be invited to an Annual General Meeting each year to vote on the future strategies and decisions. As you are part-owner of the company, you will want to participate and shape future strategies and personnel decisions. Even if you have just a few shares, every vote counts. Read those notes carefully and vote accordingly.
6. Enjoy your dividends
Prices will go up and down - it is the nature of the game. Even if prices are not as high as you wish them to be, enjoy the quarterly or annual dividends your investments are paying. These are your reward for staying invested and compensate you for the time while prices are not moving upwards.
7. Don’t be impatient
Sometimes for a strategy to work, it takes time. You might buy a stock only to see its price drop the next or even same day. Sometimes it takes weeks or months to recover. Patience is the key to success. Don’t become irritated only because the price is not going up just yet. Time is your friend.
8. Don’t try to play the market
If you have invested in a company, you are best served to refrain from going in and out of the investment. It will, in many cases, be a costly venture if you sell just because prices are slightly up only to try and buy again when prices are down. Frequently prices do the exact opposite of what you were hoping for and trading costs will eat into your profit. Finally, don’t forget that by selling and buying you will be liable to capital gains tax taking a big chunk out of your investment gains. You may be better served to stay invested in a company you truly believe in.
9. Don’t let prices affect your mood
As long as you don’t sell you have not lost any money. Remember the last financial crisis? Stock prices plummeted. If you were one of the few to not sell when the markets panicked, you should today be looking at a healthy portfolio. Always remember: You are part-owner of a company and as long as the company does not go bust and it is only the market overreacting, you are fine. Losses are no losses until you sell. Likewise, gains will only be gains once realized.
10. Enjoy life as a shareholder
Most importantly, enjoy your life as a shareholder. You are part of a select group. The majority does not hold shares. In fact, only 52% of US Americans own shares. You also have something in common with the wealthiest 10% who are all proud shareholders. If you live in Germany, you are part of an even smaller group. If you live in Germany or the UK, you are part of an even smaller group. Only 14% of Germans and even fewer, 12% of Brits are shareholders. If you happen to live in France, you are seriously amongst the most select few with less than 6% of French being proud shareholders.
