In an influential book “The Outliers” by Malcolm Gadwell, it mentioned that repeattely about the “10,000-hour rule”, which proposes that to master any significant skill, you need about 10,000 hours. Stock-picking might be more difficult to master and after 20 years of trying, most stock-fund managers underperform their market average. Clearly, you need more thinking and experience than a few tips to win this game, but the tips are still helpful to give you some basics.
1. Invest regularly and target for average.
Actually only a minority of fund managers can do better than average, and you could do worse than accomplishing the average results. From the year of 1975 to 2009, the Dow Jones Industrial Average (DIJA) had an average annual return of 9.5 percent, which means if you invested $5,000 in 1975, you would have around $140,000 at the end of 2009. In the best case, if you invested the same amount of money in 1975, you would have around $1.64 million by the end of 2009. Hence, one important tip is that you should invest regularly. Don’t try to beat the market, and you could still win.
2. Learn about value investing.
Some classic books are very helpful on learning about value investing. One of the best pick is Benjamin Graham’s “The Intelligent Investor: The Definitive Book on Value Investing”. This book explained in details about the theory and practice of value investing, including investing in companies that provides product you are familiar and like, looking for undervalued stocks, don’t be greedy, etc.
3. Diversify your investments.
A common mistake committed by beginning investors is to find some hot stock and trend and invest all the money in them. In early 2000s many self-styled expert advocated the unprecedented chances of Internet investment, and then, the market for high-tech crashed in the year of 2002 and the result was that plenty of investors suffered almost 100 percent losses. In 2005, the whole country was crazy about the real estate boom and investing in real estate, while by the end of 2008, a crash occurred in real estate field that lead the world to a major recession, which swept away many huge financial institutions, thousands of regional banks and numerous investors who put all eggs in one basket of real estate. Therefore, stock investing involves many critical rules, and the most important one of them is to diversify your investments.
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