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3 Investing Lessons to Become a Better Investor

If you are investing for the long-term, which should just be called investing with the opposite referred to as gambling, betting, or at best, speculating, then here are some things to consider before making an investment:

Good investing requires research to get a better understanding of your investment.

1. Invest in companies or in other investments that you understand. Don’t just be attracted to high rates and yields or forecasts of above average appreciation. If you can understand it, then you will have a greater appreciation for it and understand why it fails, succeeds, or stagnates. If you’re a doctor, nurse, or other medical professional – wouldn’t looking at hospitals, pharmaceutical companies, or surgical device manufacturers be more up your alley? You probably have a better perspective than those on Wall Street of the best hospitals, drugs, and medical instruments. The same holds for people in other industries and professions. Stay within your circle of competence.

2. Try and find companies and investments that are consistent in their operations and finances. Even with a superficial look you can glean that investments are consistent. You can see that a company has been profitable over the past couple of years, through recessions, and through movements within its industry. You can also find if the company has an exorbitant amount of debt or if it is more conservatively financed. Wouldn’t you sleep better if you knew the company you invested in wasn’t going to go bankrupt tomorrow?

3. In combination with the point above, do a little research or get a general sense of the industry you are investing in. You wouldn’t want to be a horse and buggy investor a hundred years ago even if the company had decent finances and a consistent history up to that point. Have a sense of the future, especially in this rapidly changing technological environment. Your money is served better by investments in companies with favorable long-term prospects.

In short, invest in what you know, what is consistent, and what will be around 10, 20, or 30 years down the road. Leave the short-term ups and downs to the traders, speculators, and gamblers. Invest with a sense that what you’re investing in is conservative and don’t be suckered in by hopes of getting rich tomorrow. If you want to gamble in the stock market, you will likely get gambling results.

- Andrew Sebastian

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