3 Basic Steps of Long-Term Profitable Stock Investing
Are you looking to make the most out of your investments in the stock market? Discover the 3 basic steps of long-term profitable stock investing that can help you achieve your financial goals. By following these proven steps and leveraging the expertise of a platform like Whale, you’ll be well on your way to maximizing your returns.
1-Identifying Great Businesses to Invest In
The Importance of Sustainable Competitive Advantage
In the world of long-term profitable stock investing, the first step is to find great businesses with a sustainable competitive advantage. Companies that have a unique edge over their competitors are more likely to generate substantial earnings and control their pricing and profit margins. Research shows that only 1% of all companies in the stock market fit these criteria, making them rare gems worth investing in.
Financial Stability Matters
Another crucial aspect to consider is a company’s financial stability. A great business should have more cash and assets than its debt or liabilities. Whale makes this research process easier for you by analyzing these factors and identifying the best companies to invest in.
2 -Buying Stocks at the Right Price and with the Right Budget
Timing is Everything
When it comes to long-term profitable stock investing, it’s essential to buy stocks at the right price. Just like you wouldn’t buy an expensive pair of sneakers without checking the price, you shouldn’t invest in a company without knowing its worth. The stock market is influenced by emotions in the short term, and manipulative news can cause prices to drop below their worth.
Dollar Cost Averaging
Whale recommends using a strategy called “dollar cost averaging” for optimal investment results. By buying stocks in three to four different batches, you can take advantage of lower prices and minimize the impact of market volatility on your investments.
3 – Exiting Your Investment at the Right Time
Patience is Key
In long-term profitable stock investing, knowing when to exit your investment is just as important as finding the right company and buying at the right price. A good investor should never panic during price drawdowns and should be patient enough to wait for the stock price to rise over time.
Taking Profits at the Right Moment
If a stock becomes overvalued, it’s time to sell and take profits. Keep an eye on the company’s price and be prepared to buy back in if the price drops below its fair value.
Conclusion:
By mastering the 3 basic steps of long-term profitable stock investing, you can make well-informed decisions and optimize your investment returns. Leveraging the expertise of a platform like Whale can simplify the process, providing valuable research and recommendations to help you succeed in the stock market.
Summary: Remember that Whale manages all three steps on your behalf.
Find great companies to invest in
How do you find companies that will outperform the market? A business is ultimately a money-making machine, so the more money it makes, the better the business is. What drives real value is consistently increasing sales, earnings.
Let's say company A is consistently growing in sales and earnings; the next thing to check would be the whether the company has a sustainable competitive advantage or not.
Competition ultimately means a constant race to increase quality and reduce the price. Suppose a company has a sustainable competitive advantage against others. In that case, it will likely continue to generate substantial earnings because the company will have the luxury of fully controlling its pricing and profit margins.
Lastly, for obvious reasons, you'll have to ensure the company has more cash and assets than its debt or liabilities.
Again Whale does all this research for you, so you don't bother with this mumbo jumbo.
By the way, companies with the above criteria are rare and only make up 1% of all companies in the stock market.
Well, thanks to Whale, you don't have to look for them hard. 🙂
Right budget, right price
Great, So you found great companies to invest. What do you do? Do you jump straight right in and buy? NO! If you saw a unique pair of sneakers, would you buy them without checking the price? Hope not. If the sneakers are too expensive, you wouldn't buy them, but rather for a discount. The same goes with stock market investing; you only want to buy if the price is less than the company's worth.
Now, we could go into boring details about calculating a business's value. Thankfully we wouldn't have to because Whale does it for us.
You may ask, 'How can a company be priced under its fair value?' Great question! Stock market prices in the short term are entirely driven by emotions. Some manipulative news comes out about a fundamentally great business, and people panic and sell. Therefore the price drops below its worth. Now, that's when the Whales take advantage of the panic and start buying shares at a bargain! A good investor knows that the price will eventually find and exceed the current value in the long run.
Whale also advises buying stock in three to four different batches. This way, you'll always be ready to buy at an even lower price! This is called 'dollar cost averaging.' Part of Whale's alert system is based on this strategy.
Exit at the right time
If you invested in a great company at a discount, your job is mainly to wait and never panic during a price drawdown. Because you know as a good investor that short term prices are driven by emotions, and a great company will always go up in value in the long term!
Whether it goes down or up in the short term, it doesn't matter, here is what you do;
If the price goes down, you take advantage of it by adding in some more shares to average down your price, or just simply hold!
If the stock simply goes over it's fair value through time, and becomes overvalued, then you should sell and take profits. You can always keep watching the company price to come down below the fair value, and buy back in later.
