Stock Investing Success

• Do your homework. This sounds obvious, but perhaps the most common mistake that investors (particularly novices) make is failing to thoroughly investigate the shares they purchase. This means that you need to develop an understanding of accounting so that you can decide for yourself what kind of financial share a company is in. For one thing, you are putting your own money at risk, so you should know what you are buying. More important, investing involves making difficult and long lasting decisions, so you cannot just take someone else's word that a company is an attractive investment. Think of the time you spend on research as a cooling-off period. It is always tempting when you hear about a great investment idea to think you have to act now, before the stock starts moving - but discretion is almost always the better part of valour. After all, your research process might very well uncover facts that make the investment seem less attractive.
• Find economic moats. In any competitive economy, capital invariable seeks the areas of highest expected return. As a result, the most profitable firms find themselves beset by competitors, which is why profits for most companies have a strong tendency over time to regress to the mean. Identifying economic moats is a critical part of the investing process. After all you do not want your company go out of business because of tough competition. Make sure you know what makes the company unique and how it protects and retains its revenues and profit margin.
• Have a margin of safety. Finding great companies is only half of the investment process - the other half is assessing what the company is worth. You cannot just go out and pay whatever the market is asking for the stock because the market might be demanding too high a price. The goal of any investor should be to buy stocks for less than they are really worth. Unfortunately, it's easy for estimates of a stock's value to be too optimistic - the future is full of nasty and unexpected surprises. We can compensate for this all-too-human tendency by buying shares only when you're trading for substantially less then our estimates of what they're worth. This difference between the market's price and our estimate of value is called the margin of safety.
• Know when to sell. Ideally, we would all hold our investments forever, but the reality is that only a few companies are worth holding for decades. Even Warren Buffett, who prefers to buy stocks forever, on regular basic reviews and rebalances his portfolio. Don't sell just because the price has gone up or down, but give it some serious thought if one of the following things has happened: you made a mistake buying it in the first place, the fundamentals have deteriorated, the stock has risen well above its intrinsic value, you can find better opportunities, or it takes up too much space in your portfolio.
• Use the right broker. Once you find the shares you are comfortable investing in it is important that you find the broker that meets your needs. It does not necessarily has to be a stock broker, as financial spread betting and contract for difference brokers are much more suitable for a short and medium term investments. Also compare the brokers by the trading fees as high transaction fees can quickly eat all your profits.