The art of successful investing

by Henk Botes

In order to gain the maximum benefit, investors should always keep in mind that time in the market is more important than timing the market.

Speculators, as opposed to investors, often try to time the market and are usually only interested in short-term gains. They employ sophisticated trading tools to make their decisions and need to have a profound understanding of the dynamics that move markets and individual shares. This is not necessarily the forte of the individual investor.  

An investor must realise that markets are cyclical, and that a bear market, defined as a 20% decline from a market high over a period of time, will happen; markets will not keep strengthening forever. Selling when share prices reach the top and buying when they are at the bottom is an ideal scenario. This is, however, very difficult to achieve and the reverse, selling at the bottom and buying when a share price is at its highest, is unfortunately usually the norm. Long-term investors therefore usually achieve better results from their share portfolios than short-term speculators.

Markets often overreact on both the upside and the downside. Whatever the market reaction though, it is important that investors stick to their individual investment strategy, and not panic. It is understandable that investors are concerned when markets fall and start to question their investments. What an investor doesn’t want to do, however, is to make rash short-term investment decisions that have negative long-term wealth consequences. Diversifying your investment portfolio and keeping the percentage of your total portfolio in shares, cash, property and bonds constant over your investment term is an important way of protecting yourself against losses.

In order to be a successful investor you need to make sure that your portfolio includes top-quality shares. Although the best shares in the best sectors may fall the farthest when the market does turn, these shares will usually recover the quickest and be the most valuable in the long run. If you continuously hold the top-performing shares in the top-performing sectors, you will consistently grow the value of your investment portfolio in the long term.

Equities are the most volatile of asset classes in the short-term but have historically been shown to provide better after-tax returns over the longer term. As an investor, while the shares or units that you own have a present value, this figure is only an indication of what they are worth if you were to sell them today. The future value of your portfolio is far more important. It is imperative to understand that uncertainty and volatility in investment markets do not only represent risk, it also represents opportunities.

By seeking investment advice from a qualified financial adviser, keeping the various elements of your investment plan aligned and by remaining informed about your investments, you will be able to successfully navigate the investment market storms on your journey to wealth creation.

The information contained in this article is of a general nature and intended for information purposes only. It is neither to be construed as financial advice nor to be regarded as a definitive analysis of any financial, legal or other issue. Individuals must not rely on this information to make a financial or investment decision. Before making any decision, we recommend you consult your financial planner/adviser to take into account your particular investment objectives, financial situation and individual needs.

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