Cut-to-the-Chase Actions

 


Let’s summarize the 5 key one-size-fits-all steps to investing without diving into anything math-related:

1. Begin with a direct stock purchase plan (DSPP) and/or index funds passively managed by a robo-advisor. Many companies offer dividend reinvestment plans (DRIPs) that further simplify the investment process. DRIPs automatically buy more shares on your behalf with your dividends. If you reinvest dividends, you can supercharge your long-term returns because of the power of wealth compounding. This is dollar-cost averaging (DCA) in action.  

2. Focus on asset allocation using the money you won't likely need within the next 5 years.

3. You'll need a specialized type of account called a brokerage account to actually buy stocks, mutual funds, and ETFs. The majority of online stock brokers have eliminated trading commissions while offering the ability to trade on foreign stock exchanges. There's also the user-friendliness and functionality of the broker's trading platform.

4. Optimize your beginner-friendly portfolio using best practices - diversify your portfolio, invest only in businesses you understand, avoid high-volatility, OTC and penny stocks, and invoke fundamental metrics and ratios.

5. Following Warren Buffett, continue investing in great businesses at reasonable prices and hold on to the shares for as long as the businesses remain great.

Comments

  1. VA DigHiSciFebruary 6, 2022 at 12:08 PM

    Finally, let’s illustrate the above steps based upon the Peter Lynch approach that passed the real-world performance test [95]. Lynch’s bottom-up approach means that prospective stocks must be picked one-by-one and then thoroughly investigated. In general, he tends to favour small, moderately fast-growing companies that can be bought at a reasonable price. Lynch does not believe that investors can predict actual growth rates, and he is sceptical of analysts’ earnings estimates. Instead, he suggests that you examine the company’s plans to increase its earnings. Analysis is central to Lynch’s approach. In examining a company, he is seeking to understand the firm’s business and prospects, including any competitive advantages, and evaluate any potential pitfalls. Here are some of the key metrics being used: year-by-year earnings, earnings growth, the P/E ratio (relative to the industry average and to its earnings growth rate), ratio of debt to equity, net cash per share, dividends & payout ratio, and inventories. When evaluating companies, there are certain characteristics that Lynch finds particularly unfavourable. These include: hot stocks in hot industries; small firms with big plans; profitable companies engaged in diversifying acquisitions; companies in which one customer accounts for up to 50% of their sales. For Lynch, a price drop is an opportunity to buy more of a good prospect at cheaper prices. Rather than simply selling a stock, Lynch suggests "rotation" - selling the company and replacing it with another company with a similar story, but better prospects. Listen to his audio-books for detail [96].

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