Long term investment is not a very popular form of stock market investment; but the people who follow this strategy are all great visionaries. Warren Buffett is one of them who has made great name for himself by following a long term investment strategy. These people are just like you and me but they have realized the phenomenal strength of 'long term investment'. What they know about long term investment that we common people do not realize? The answer is very simple; they simply follow few logical steps of long term investment and stick to it no matter whatever comes. Let us read the minds of worlds greatest long term investors and learn to unlock the process of extraordinary wealth generation:
Wait and Watch Theory
Stock market is driven by speculation and this drives all stock prices up and down. The grating stock prices are more because of trader's sentiments than because of companies fundamental. The emotions and wishful thinking linked with the stock prices makes the stock market so volatile. Investors like Warren Buffett use this theory to his maximum advantage. He plays and wait and watch game; he puts his money in stock market only when the prices of stocks are at its rock bottom. Take for example the level of stock prices in after recent banking crisis in US, after 9/11 tragedy, after Iraq war in nineties. In these times of crisis the stock prices fell to its most alarming levels. A planned long-term investor waits for such crisis to happen and puts their capital in stock market to get the maximum long term benefits. Of course this wait-and-watch theory is not easy to implement. People often loose patience and either spend their savings or else invest it in not so attractive stocks. The problem is people gets so overwhelmed with the process of investment that it becomes extremely urgent for them to invest few bucks every month. May be they are only able to grasp average performing stocks but they feel happy by buying those than keeping their money unattended for long time. Most of the investors are afraid that if they will not lock their money ultimately it will get spent on not-so-important-liabilities of life. So they better lock their money in averagely performing stocks. Here lies a difference between an average long term investor and champion investor like Warren Buffett. They save money, wait for the right time and then put their money to work. They do not invest under compulsion or habit.
Invest in blue chip companies
The second care these champion investors take is that they do a lot of research on companies before putting their money in it. But I know an average retail investors do not have time to do such extensive research. So people resort to investing in blue chip companies. But there is nothing bad in following this strategy. If you will ask inside secrets of champion investors they also follow this strategy of investing in blue chip companies. These companies are characterized by a common philosophy, they are all run by excellent managers, they have very strong market capture, they have a product which sells like a monopoly, they have tremendous brand name and at last a proven record of enhancing the stock holder's value in long run. But take care; there can be nothing worse then investing in these companies when their prices are at its peak. Champion investors like Warren Buffett combine the strategy number one (wait and watch) with strategy to buy stocks of blue chip companies. Means when the stock prices of these blue chip companies falls due to ant financial crisis they buy more of these stocks. But wait and watch is the key.
Ideally an investor should have maximum funds at his disposal when the stock market is showing signs of dramatic fall. In order to get maximum benefits of a falling market max funds must be put to work to buy more and more stock of blue chip companies.
Save your hard earned money and follow wait-and-watch-theory before buying stock of blue chip companies. The return that you can expect form this form of long term investment is mind blowing. Try to calculate the returns if you would have bought the stocks of Microsoft just after the banking crisis of 2008. The returns will come like 200% percent and around.
The author is a big enthusiast of the process of investment and aspires to set-up a highly successful online business of himself. He is a firm believer in the concept of 'working for self can make this world a better place to live'. He has also been heavily influenced by the theories and practices of Warren Buffett and would like to practice investment just like his guru.
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