How do you make money with your investments? There are two basic strategies. One is to pick a solid investment based on strong intrinsic value and hold for the long term. The other is always to follow the old adage to buy low and sell high. The first approach assumes that timing the market is difficult and not worth the risk. The second approach uses a lot of technical analysis in an attempt to time the market. Our suggestion is that for the long haul you should follow the first approach for the majority of your investments. You should treat your investments like a cash machine and not a slot machine. That is to say, stick with what you know, repeat what is profitable, and do not gamble.
Treat Your Investments Like a Cash Machine and Not a Slot Machine: Long Term Value Investing
On the average, money invested in the US stock market has accumulated value decade after decade for more than a century. Individual stocks rise and fall but the overall market goes up. Successful long term investors pick stocks and stay with them. We wrote about how many years are required to make an investment long term? The answer is that to take advantage of the long term appreciation of the US stock market you need to stay with your investments for 5 and 10 years or longer.
The point is that well-chosen stocks represent well-run companies with strong products. These companies will make money year after year. And they typically have a margin of safety in the form of property and cash in the bank instead of excessive debt.
When you pick solid stocks for the long term you treat your investments like a cash machine and not a slot machine.
Treat Your Investments Like a Cash Machine and Not a Slot Machine: Market Timing and Best Approaches
The short term approach to making money in the stock market assumes that you can time the market. And it assumes that you will enter and leave the market instead of staying for years. Short term investment requires more work in the short term but offers potentially bigger profits.
There are two things a person may be looking for in a short term investment. One is a place to park their money that is safe and pays better than a bank savings account. The other is a way to profit from the ups and downs of the stock market. The first just has to do with checking out interest rates on T Bills, CD’s, and other short term debt instruments. The second is where technical analysis tools such as Candlestick pattern formations can help a person to trade stocks and make a substantially better profit than the bank offers or even what one can gain from long term investing.
The point here is that stocks do not grow in value on a smooth upward course. Their prices go up and down even while the long term trend may be upward. So, there are profits to be made in shorting a stock or in buying put options. But to make money in this realm you need to pay attention, stick with what you know and treat your investments like a cash machine and not a slot machine.