Patience could apply to anyone who wants to learn to invest in the stock market, but the long-term investor needs to sit and watch the world go by. You cannot buy shares at any price, even if you like the company in question. It has to be at the right price.
If fear is one of the trader’s worst enemies, greed is that of long-term investors. You already know the saying: be greedy when everyone is fearful and fearful when everyone is greedy. This principle has made Warren Buffett one of the richest men in the world, because he has always bought when no one wanted big companies, at bargain prices. When the bag gets expensive it is better to stay on the sidelines.
Feeling part of the business
Here comes the fundamental analysis. If you want to invest in a stock market thinking of a very long term, even for a lifetime, you have to study the company you’re buying very well, know how it will react when things go wrong, where it generates income, its expenses, etc. You have to know that you are buying a business, not just some stocks.
Buy simple business
There is a Warren Buffett maxim that I love, buying businesses that are easy to understand and manage, businesses that even a fool could make work, do you know what your excuse is? That someday it can be governed by a fool. For that reason it was not crushed by the dot.com crisis, I did not trust those companies because there was also nothing behind, only expectations.
The safety margin
The margin of safety is something so simple that everyone can understand: buy shares of companies for less value than they could really have. This advice, although it involves simplicity of scandal, is not so simple to carry out, unless you have the necessary preparation to understand the accounting of the company. That is why it is necessary to adequately prepare the investor profile that you want to be.
Look for competitive advantages
There are companies that will never be at bargain prices, because they have competitive advantages that make them market leaders and ensure that they will continue to be in the future (Is someone going to displace Coca-Cola or Google?). In this case, the only thing that remains is to buy at “reasonable prices”.
Diversify the right
Diversify, you have to diversify. Diversification can be done in many ways: temporary, making periodic contributions, in sectors, looking for uncorrelated sectors or even in countries. Everything has a limit; if we have 1,000 euros and invest in 1,000 different companies we are limiting our power to generate wealth. In this case, much of what has been said before comes into play: studying companies, buying with margin of safety, etc. If you get a good company, you must invest, but of course, not just one.
Discipline, prudence and patience
Everything said for those who decide to learn to invest in the stock market for the long term could be summarized with three words: discipline, prudence and patience. Discipline, to buy only when the business is really worth it. Prudence must govern all our acts, especially not to buy when it is not due to the fact that the price is excessively high for what they offer us. Patience, I said that patience is key to long-term investment, precisely looking for those good prices that will make us earn money.
“Eye” is not all that glitters gold.
Search for strong companies
Strong companies are usually mature companies, which have been operating for some time and have shown that they are capable of generating profits (with those that pay their shareholders) over time.
Companies with acceptable debt
You have to look for companies with limited debts. I do not want to say that it is necessary to invest in companies without debts, because in some sectors it is necessary to borrow for the normal operation of the business, but we have to know if the company will resist adverse situations. A clear example has been Telefónica, a company with a heavy debt, which in a very hard period has had to abolish its dividend and when it has been redistributed has been much smaller than before. Sometimes high dividends are masking some problem, or are the result of the decision of a board of directors with very bad criteria.
Invest in profitable companies
In the investment for dividends I look for mature companies, precisely because over time is when profitability is demonstrated. It is very difficult for a company that is starting to be profitable and if it is, a large part of the capital it generates will go to growth. Therefore, they are not exactly interesting companies for all those who seek dividend yields.
The payout is the part of the profits that the company allocates to its shareholders. The ideal is for the company to have a growing Payout history, while maintaining prudence. You have to invest in companies that have a reasonable Payout, because if at a certain time the benefits decrease, the shareholder remuneration can be maintained. I like companies that keep Payout close to 50-60% and of course you have to flee from companies that get into debt by paying dividends, or that have high Payouts, simply because they are not sustainable over time. Finally Professional Stock Market Training is the best option for you.