Investing into small cap companies can be a good idea however accessing research materials is cumbersome. You may need to do a lot of work to learn about those companies to get detailed understanding of the area.
Even if you don’t have much stock picking skills you can improve it by avoiding the lowest quality stocks. Additionally, try avoiding the big losers rather than finding the big winners.
If you invest into a company with higher credit risk you may want higher potential return for bearing risk.
Just because you avoid taking risks in one area of life (e.g. health) it doesn’t mean you act the same way in other area of life (e.g. finance).
It’s important to make sure that you’re comfortable with the risks you’re taking.
Investors can be split into four types: value, trend, quality and growth investors.
Value investors don’t mind to go against the flow as long as they believe they are right. They trust their own judgment even when others have different views.
Trend investors tend to go with the flow. They take the advantage of businesses that are doing well to keep doing well, and the ones that are doing badly to keep doing badly.
Quality investors looking for companies that have some highly competitive property. They rely on the market fail to properly price the potential future growth. The return to this strategy occurs at an intermediate time on a long run. Meantime, there will be a lot of market noise that needs patience to ignore them and focus on the quality. The company continually needs to be assessed if it still has the potential.
Growth investors recognize that the company will eventually produce a significant profit in the future even if it’s currently making loss. It’s very difficult to find a company like that because the market can overprice the potential company.
It doesn’t matter what type you are out of the four but what matters is to be consistent, know your strengths, your weaknesses and be able to control them.
The price you bought the stock for doesn’t matter. Buy stock when it has potential and sell when it’s no longer have potential that is when your analysis indicates it no longer has any significant upside.
You should only invest into a stock when there is a potential in investing it. There could be unforeseen situations that are not favorable but often errors cause the biggest losses.
There are two kinds of thinking: slow and fast thinking. The slow thinking is more throghout and requires significantly more mental effort than the fast thinking. However, our body doesn’t like to use slow thinking. Fast thinking provide intuitive and immediate, and also, perhaps wrong answer. When making investment decisions slow thinking is preferred.
Sleep, hunger, alcohol can influence our decision making.
Overconfidence can affect even the most prolific investors. One thing you can do to against it is to diversify your portfolio more than you initially think.
Optimism in investing can have a downside which is to underestimate that something bad is happening.
You want to be consistent but sometimes you need to change your mind. Define upfront what can cause to change your mind in your investment strategy.
You are more likely to overvalue stock that you own compared to those that you don’t currently have.
