4 Tips For Investing Your Money Safely And Wisely

Article by Vintage Value Investing

As you probably already know, investing in stocks can be a wonderful way to make an income. Nevertheless, there is undeniably some risk involved with investing. If you’re not careful and do not take the appropriate precautions, you could very well end up losing your money. The risk is far lower than gambling your money away at the casino, but you should still proceed with caution. Below, you’ll find tips for investing safely and wisely.

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 Mohnish Pabrai Indian-American businessman, investor, and philanthropist famous hedge fund investors, value investors, chai with pabrai, heads i win tails i don't lose, pabrai funds, Mosaic: Perspectives on Investing, clone investing, The Education of a Value Investor, The Dhandho Investor: The Low - Risk Value Method to High Returns, Zinc, Horsehead holdings

1. Perform Research and Ask Advice

First and foremost, ordinary investors need to realize that they’re not institutional investors. You probably have limited experience in stocks and this can make it difficult for you to make the right picks in the beginning. Researching the underlying company and their financials is absolutely pertinent. Simultaneously, you should consider asking advice from a professional. Make sure you’re making decisions that are recommended. If you act haphazardly, your money is already gone.

2. Use Stop Losses

Stock prices can fluctuate from day to day and minute to minute. A little fluctuation is normal, but you should be very cautious about substantial price drops. The company may have released terrible news that has sent the stock price plummeting. Unless you want to lose your money, you need to pull out immediately. However, you’re away from the computer and cannot access your brokerage website.

This is where the stop loss enters the picture. By setting a stop loss, you will be able to ensure that the stock automatically sells when it has hit a certain level. This is a good way to ensure your losses are minimized. Alternatively, the stop loss can be used to secure gains.

3. Look For News And Not Price

Some people will drive themselves crazy looking at the stock price day after day. When it comes to investing, returns are always related to risk. You can learn more about that by clicking here. However, you should keep your nerves at bay. It is not always a good idea to check the price so frequently. If you do, you’re going to go insane and you may even make a bad decision based solely on emotions. With this in mind, it is best to keep an eye out for news, but not price.

Check out the news related to your specific tickers (you can even set up Google Alerts for the companies in your portfolio) – but only check out the stock price once or twice a week. This will help you avoid making irrational decisions based on your emotions. Checking the news will ensure you’ll be more likely to lock in gains and avoid losses.

4. Don’t Go Overboard

Another thing to remember is that you’re not going to become a millionaire overnight, so you shouldn’t even bother. Instead, you should simply do your best to avoid getting into trouble. Investing too much will potentially come back to haunt you in the future. It is best to only invest money that you can afford to lose. Investing can easily be just as addictive as gambling. Therefore, you should set limitations for yourself to prevent overdoing it and getting yourself into deep, deep trouble.

For more tips on investing, be sure to check out: The Ultimate Guide to Value Investing



About the Author

Ben Graham, the father of value investing, wasn’t born in this century. Nor was he born in the last century. Benjamin Graham – born Benjamin Grossbaum – was born in London, England in 1894. He published the value investing bible Security Analysis in 1934, which was followed by the value investing New Testament The Intelligent Investor in 1949. Warren Buffett, the value investing messiah and Graham’s most famous and successful disciple, was born in 1930 and attended Graham’s classes at Columbia in 1950-51. And the not-so-prodigal son Charlie Munger even has Warren beat by six years – he was born in 1924. I’m not trying to give a history lesson here, but I find these dates very interesting. Value investing is an old strategy. It’s been around for a long time, long before the Capital Asset Pricing Model, long before the Black-Scholes Model, long before CLO’s, long before the founders of today’s hottest high-tech IPOs were even born. And yet people have very short term memories. Once a bull market gets some legs in it, the quest to get “the most money as quickly as possible” causes prices to get bid up. Human nature kicks in and dollar signs start appearing in people’s eyes. New methodologies are touted and fundamental principles are left in the rear view mirror. “Today is always the dawning of a new age. Things are different than they were yesterday. The world is changing and we must adapt.” Yes, all very true statements but the new and “fool-proof” methods and strategies and overleveraging and excess risk-taking only work when the economic environmental conditions allow them to work. Using the latest “fool-proof” investment strategy is like running around a thunderstorm with a lightning rod in your hand: if you’re unharmed after a while then it might seem like you’ve developed a method to avoid getting struck by lightning – but sooner or later you will get hit. And yet value investors are for the most part immune to the thunder and lightning. This isn’t at all to say that value investors never lose money, go bust, or suffer during recessions. However, by sticking to fundamentals and avoiding excessive risk-taking (i.e. dumb decisions), the collective value investor class seems to have much fewer examples of the spectacular crash-and-burn cases that often are found with investors’ who employ different strategies. As a result, value investors have historically outperformed other types of investors over the long term. And there is plenty of empirical evidence to back this up. Check this and this and this and this out. In fact, since 1926 value stocks have outperformed growth stocks by an average of four percentage points annually, according to the authoritative index compiled by finance professors Eugene Fama of the University of Chicago and Kenneth French of Dartmouth College. So, the value investing philosophy has endured for over 80 years and is the most consistently successful strategy that can be applied. And while hot stocks, over-leveraged portfolios, and the newest complicated financial strategies will come and go, making many wishful investors rich very quick and poor even quicker, value investing will quietly continue to help its adherents fatten their wallets. It will always endure and will always remain classically in fashion. In other words, value investing is vintage. Which explains half of this website’s name. As for the value part? The intention of this site is to explain, discuss, ask, learn, teach, and debate those topics and questions that I’ve always been most interested in, and hopefully that you’re most curious about, too. This includes: What is value investing? Value investing strategies Stock picks Company reviews Basic financial concepts Investor profiles Investment ideas Current events Economics Behavioral finance And, ultimately, ways to become a better investor I want to note the importance of the way I use value here. It’s not the simplistic definition of “low P/E” stocks that some financial services lazily use to classify investors, which the word “value” has recently morphed into meaning. To me, value investing equates to the term “Intelligent Investing,” as described by Ben Graham. Intelligent investing involves analyzing a company’s fundamentals and can be characterized by an intense focus on a stock’s price, it’s intrinsic value, and the very important ratio between the two. This is value investing as the term was originally meant to be used decades ago, and is the only way it should be used today. So without much further ado, it’s my very good honor to meet you and you may call me…