If you want to be a great investor the single most important thing to do is focus on the long term. When selecting stocks take a five-year time horizon as a minimum starting point to guide you in aiming for the best possible returns. A beneficial side effect of a long-term focus is that you are unlikely to buy companies that seem cheap, but are best avoided on long-term prospects. Businesses like Woodside Petroleum Limited (ASX: WPL) might offer low price-earnings and high yields, but a high yield is often a sign the market expects the dividend to be cut, so be sure to look to always looks at least five years out. A business like Woodside is a sound long-term investment, but you need to be sure of paying a fair price for your share in the company.
A lot of other ordinary investors will rely heavily on confirmation bias before committing to an investment. In other words they will want to see evidence of a stock being in an upward trajectory over a short time period before buying, this is because their focus in on the short term not the long term. If you reject the short-term confirmation bias to buy companies at good valuations on long-term prospects you give yourself the best opportunity to make big-time profits by being greedy when others are fearful.
Companies to consider in short term downward trends with strong long-term prospects include maker of the potable Black Gold, Coca-Cola Amatil Ltd (ASX: CCL), or insurance giant QBE Insurance Group Ltd (ASX: QBE). You don't need to be Warren Buffet to realise that online education is a long-term growth sector either, and another company sold off recently despite some strong long-term prospects is higher education provider Navitas Limited (ASX: NVT).
