Smart investing requires contrarian thinking. Here a UK Fool recaps some of the best investing advice he's heard.
A successful hedge fund manager once told me: "Some of my analysts are really smart and do all their research, but when it comes to placing the trade they just can't pull the trigger".
Even educated, professional traders get defeated by their doubts. Don't let that happen to you.
Here is a collection of investment mottos I use nearly every day when analysing or making investments. Every one has made me money.
1) Leave something for the next man
During the August market panic, I closed one of my cash ISAs and bought shares in FTSE 100 stalwart BP (LSE: BP) at 385p. At that price, BP was paying a shareholder dividend well ahead of bank interest on cash.
The shares rose as the market recovered and I sold at 430p. BP's rise continued after I sold in November, reaching 500p in February this year. I maintain selling at 430p was the right decision.
As an investor, I'm happy to take a price below the level I believe the shares could reach. This is 'leaving something for the next man', the metaphorical investor who comes along, believes your shares are still cheap and buys them off you. If you hang around demanding too high a price for your shares, you could be in for a long wait.
Despite its earlier advance up to 500p, today BP shares trade at less than the 430p I sold at.
2) There is always a reason not to buy
In December 2011, I was running the rule over Robert Wiseman Dairies, a high-yielding mid cap. The milk producer was trading on a historic yield of 7.1% and price-to-earnings (P/E) ratio of 6.8. There was a real cow pat on the income statement, however: profit margins had fallen from 4.1% to 2.6% in just six months.
My attitude was that the dairy industry had been through these kind of margin difficulties before, and that the company's low margins would actually help them in negotiations with customers and suppliers.
There is never a return like 7.1% on offer from shares without risk being present. There is always a reason not to buy. If you are not willing to accept shares will never be a risk-free proposition, then you will never make returns like I did on my investment in Robert Wiseman Dairies. In January, the company was taken over at 390p per share, a price 55% higher than I'd paid just six weeks earlier.
3) A falling share price is rarely a reason to sell
Many beginners are panicked into selling when their investments fall in value. Luckily, early in my investment career I met an investor who told me these words: "A falling share price is rarely a reason to sell."
Take my experience with Bond International Software (LSE: BDI). I first bought in November 2010 at 60p. The market did not share my enthusiasm and, despite no material news being announced by April 2011, the shares had fallen to 43p. The story at Bond hadn't changed, the only thing that had was the price! I bought Bond shares again at the knock-down price, spending as much as I did at 60p but getting considerably more stock for my money.
In April this year, the company announced a 50% increase in its dividend to shareholders and the shares soared. I'm not yet in profit on the shares I bought at 60p (today the shares are 59p to buy) but my refusal to be frightened into selling by the share price fall, instead acquiring more at the lower price, is why I am in profit on the average price that I paid for my shares.
4) Investing is not a team sport
If you want to make money in shares, there will be times when you will have to go against the advice of people you respect.
That's because investing is not a team sport. The very best investment opportunities will be accompanied by smart investors who are dead against putting their money in.
In December last year I thought the worst of the eurozone crisis had passed, and that shares in RBS (LSE: RBS) were cheap. The advice from all other investors I discussed RBS with was overwhelmingly negative, citing losses on government bonds to regulatory changes to government interference as reasons to avoid the shares.
Such a level of bearishness on a company often means its shares do not have much further to fall, and I bought at 21.6p.
In the five months since, RBS shares have traded as high as 29p — that's 34% above the price other investors were telling me was too much. The shares have fallen back closer to my buy price in recent days, but I believe RBS shares may be even more of a buy now than they were in December.
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The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
A version of this article, written by David O'Hara, originally appeared on fool.co.uk