The Investing Strategy I Used to Find Stock Market Success
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One reader shares how he went from investing losses to stock market hero and the tips you can use for stock market success
I fell in love with the stock market in high school.
In my economics class we watched the film Wall Street. I wanted to be Gordon Gekko. Not that I slicked my hair back and started wearing suits to school, but that I wanted to be a Wall Street millionaire.
I started to read books on investing strategy. My first was One Up On Wall Street by Peter Lynch. It was a great read and I took to heart the idea of “buying what I know”.
Buying What You Know for Stock Market Success
So I started to look at the things I used and liked. I kept a list and made notes. Then one day as I was walking around the mall, it hit me. I noticed every single woman in the mall with a pink striped Victoria’s Secret bag. I walked past the store and saw it was flooded with customers.
I left thinking that maybe a sale was going on or something. The next few times I went back to the mall however, I saw the same thing. Tons of women with the Victoria’s Secret shopping bag and the store packed.
I was hooked. I went home and started searching. I found that I could buy Victoria’s Secret for around $20 a share. (At the time it traded through Intimate Brands which owned a few specialty retailers.)
Since I was too young to buy the stock myself (I was under 18). I had my Mom open an account for me. I put everything I had into the stock.
I made off like a bandit. My money doubled within the year. My fire was lit. I was ready to make my next purchase.
Unfortunately, Victoria’s Secret was my only winner. My next buy was a complete disaster. I bought Worldcom and rode it down into bankruptcy. I even picked up more shares on the ride down!
I bought Ford stock as well. Then the Firestone tire debacle hit.
Then I bought a tech mutual fund that was earning over 50% a year for the past three years. A few months after I bought it, the dot com bubble burst and I lost 60% of my money. At least I learned to not ride it down to the bottom this time!
Time For A Serious Stock Picking Change
I was horrible at investing. There was no way I was going to become Gordon Gekko. Disappointed, I headed to the bookstore to blow some time. I ended up in the business section and stumbled upon A Random Walk Down Wall Street. I started to read it and couldn’t put it down.
It opened my eyes to how hard it was to beat the market through active investing and how I would be better off using passive investing.
I took the book to heart and started to do some research. I found a few low cost index mutual funds at Charles Schwab. I opened my account and started to put money into three funds. I made it a point to transfer money each month over to Schwab and invest more.
Things were going well. My investments were growing and I was happy. Then the collapse of the stock market happened in 2008.
While I wanted to give in to the panic and sell, I stood my ground thanks to an investment plan I created after starting my new investing strategy.
Instead of selling, I kept putting more money into my three mutual funds. Sticking to my plan paid off. By early 2011 my portfolio had recovered from the collapse. In the years since, my portfolio has continued to grow in value.
Now I read stories of the next stock market plunge. I’m not worried. I am taking a long term view of things and will keep investing because I don’t need the money I have invested for a few more decades.
Tips To Help You Succeed In The Stock Market
So what are some actionable tips I can give you to help you become more successful at investing? Here is a short list to focus on.
Don’t Let Your Emotions Control You: We never make good decisions when we are emotional. Selling out of the stock market when it is dropping or buying when prices continue to rise is letting your emotions control you. Keep a level head and think things through.
Have A Plan: You need to have an investment plan. It doesn’t have to be complicated. Just write your specific goals down as well as the investments you are investing in. Include reasons as to why you are investing the way you are. This will help to keep your emotions in check when the market drops.
The Market Is A Cycle: Just like the economy grows and contracts, so does the stock market. It will rise for a few years, then drop. It may even go sideways for a bit. But the bottom never fully drops out. In the rare event it does, we will have much bigger problems to deal with.
Invest Regularly: No one can time the market. I’ve read countless stories of people predicting doom and gloom for the market and others who claim the market will rise to six figures. No one has any clue what the market will do tomorrow, let alone next year. Your best option is to invest at regular intervals. This could be monthly or semi-annually. Do whatever works for you. Just keep doing it regardless as to what the market is doing.
Stick To Your Guns: One important key to a successful investing strategy is to pick a couple of investments and stick with them. When you buy and sell and jump around chasing returns, you hurt yourself. Just look at the chart below as proof. The more you jump in and out of the market, the more you hurt yourself.
Be Rational: Finally, you need to be rational. You aren’t going to turn your $100 into $10 million investing in the stock market overnight. The stock market is a place where you grow your wealth over the long term. When I started out, I invested $2,000. It was all I had. Over the years, I’ve invested more money each month. It was never a huge amount, at most $1,000. But here I am 20 years later and am close to having a million dollars.
Final Thoughts on Stock Market Success
You can go from a stock market loser to a hero just like I did. You just have to make some changes for the better and develop an investing strategy that works. The good news is you have time. If you make an effort starting today, you can start seeing results and reach your financial goals. But you have to take that first step. The longer you wait, the harder it will be to reach your goals. So get started today.
Jon Dulin was a financial services professional for over 10 years. In addition to working at world class mutual fund companies, he also managed over $500 million in client assets at a wealth planning firm. He currently blogs at MoneySmartGuides and PennyThots.
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