Long-term investment: According to Benjamin Graham, author of The Intelligent Investor, an investor is someone who invests time on analyzing the stocks to buy them for a long period of time. This term appears in opposition to speculators who try to make fast operations to win in the short-term.
The problem with Benjamin Graham’s approach is that if you are not as skillful at picking stocks as he was and you follow his philosophy of keeping the stocks for a while even when they go down because you are sure in that in the long-term they will rise, eventually you will have a nice portfolio of losers.
In order to avoid that, we have some tips that will help you make better decisions.
Do not look at the market every day.
If you invest in the long-term and you have decided to keep your stocks even when they start to go down because you are sure your analysis was correct, it does not make sense to follow the evolution of your stocks’ price every day.
If you do so, you will be influenced by market waves. One day your stock can fall 5 percent, or in one week it can fall 10 percent; but if you are investing for the long term so you will have a nice portfolio in 10 or 15 years, it does not make sense for these movements to make you nervous.
One of the most common mistakes of investors is to approach investing as if they had the intent to invest in the long-term, but then they follow the price too closely and get nervous and sell when they shouldn’t.
Be coherent.
Now you may be thinking that what I have said above is easy to say; but when the falls come, it is not so easy to apply.
That is right. A common misconception is that investing in the long-term does not have risks involved.
It is true that it is easier to identify long-term trends, but that does not mean that you will make many bad decisions.
However, closing them fast is only justified if you have decided on a set of rules and you are applying them. Therefore, it is not justified if you are just scared of the latest news on TV.
Accept that you will have cash for long periods of time.
In order to buy for the long-term and leave room for falls, you need to be right more than you are wrong. This means that you will only invest in the clearest opportunities, and months could pass without any of them.
With this approach, more than ever, having cash does not mean that you need to invest it.
Choose a broker with low standard commissions.
Sometimes brokers have deals in which they offer discounts if you operate more than a certain amount of times. They may also have welcome offers or other kinds of promotions.
When you invest in the long-term, that is not for you. You need to research and find a broker with low commissions especially related to holding the account. Most of the brokers focus their promotions on the commission for each trade; but in your case, you will make a small number of trades yearly, so the important commissions are the ones related to maintenance.
Conclusion
Investing for the long-term is not for all. Only those who accept the implications that long-term trends give room to higher losses (and also profits) will succeed. If you get nervous with small movements, then you may want to change to the speculator approach.
*This article only has informational intent and is not investment advice.