The road to multi-bagger returns is long and filled with volatility. We are all on a journey to becoming better investors and here are three quick lessons that I found helpful on my journey.
Increase your holding period
In the short term, the stock market is extremely volatile and unpredictable. Even the best performing shares on the ASX can lose a significant portion of their market cap within a matter of days.
Take last week’s top performing share Afterpay Touch Group Ltd (ASX: APT) which went up 30% in just two days.
The same company had lost 30% of its value in the three months from 17 January 2018 to 23 April 2018.
Can you stomach that kind of volatility?
I sure hope you can. The share prices of high quality companies tend to go up over time and the longer you hold on to them the better your chances of increasing your returns.
Winners stay winning
It’s human nature to think that what goes up must come down and vice versa.
Most people apply that to the stock market by looking to buy shares that are trading near their 52-week lows hoping that they bounce back whilst selling those that are trading near their 52-week highs.
In my experience, it is a more rewarding strategy to focus on winning companies and understanding why they are winning.
That’s why Warren Buffett said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”.
Would you have bought shares in Altium Limited (ASX: ALU) at the beginning of 2018 after its shares had already gone up over 900% in the previous five years?
I sure hope you would have because Altium is up over 50% in 2018!
Before you make your next investment, ask yourself whether you have the interest and are willing to take the time to learn more about the company you are investing in.
The Commonwealth Bank of Australia (ASX: CBA) has different growth drivers compared to CSL Limited (ASX: CSL) or Wesfarmers Ltd (ASX: WES) and understanding that can help you keep your emotions in check when volatility kicks in by focusing on the long term performance of the business.
Now that you are ready to invest, you might want to start with these four shares that our team of experts have identified as the best shares to buy right now.
5 stocks under $5
We hear it over and over from investors, "I wish I had bought Altium or Afterpay when they were first recommended by The Motley Fool. I'd be sitting on a gold mine!" And it's true.
And while Altium and Afterpay have had a good run, we think these 5 other stocks are screaming buys. And you can buy them now for less than $5 a share!
*Extreme Opportunities returns as of June 5th 2020
You can find Kevin on Twitter @KevinGandiya.
The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia owns shares of AFTERPAY T FPO and Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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