Stock Market: The Secrets of Investing Success

Some people become millionaires by investing. Others wallow, never getting ahead while complaining the stock market is fixed.

What’s the difference? I can sum it up in three words: commitment, discipline, and patience.

It sounds simple. It’s not. Let’s delve a little deeper.

Commitment: Successful investing is not simply about making an annual contribution to an RRSP, although that’s never a bad idea. It’s about deciding to improve your financial life, and committing the time, resources, and money to making that happen.

Novice investors may have a limited amount of cash available to get started. That’s not an excuse for putting it off. Most financial institutions have investment programs designed for beginners with only small amounts to put aside. Online brokerage minimum account sizes are low; some have a zero minimum. 

Time may be a more inhibiting factor than available cash. We’re all busy. There are never enough hours in a day. It’s an often-used argument for doing it next month, or next year — or never. 

If you’re going to build a successful portfolio, you must devote the hours needed to create and manage it. That means researching the stocks and/or funds you want to own or having a competent professional do it for you. It means reviewing your holdings regularly (at least once a quarter) and asking yourself in each case if you would buy it now. It means staying abreast of national and international events and understanding how they affect your portfolio. It means getting involved and staying involved.

There are many resources to help you — newspapers, books, magazines, TV, and the internet. If you use a financial advisor, his or her guidance could be invaluable — a full-service broker is backed by a team of highly trained analysts who produce regular reports on stocks and sectors. Help is always available. Use it.

Discipline: The most successful investors are those who make a plan and stick to it — assuming the plan is basically sound. That’s not always easy. During times of market stress, the temptation may be strong to get out of equities and sit in cash until things stabilize. But market timing doesn’t work, as repeated studies have shown. If you have quality investments, they’ll recover. Instead of selling, take advantage of the bargains to buy more. 

Have the discipline to reinvest incoming cash flows as they’re received. That’s a suggestion from Dale Harrison, a retired senior financial analyst and portfolio manager with Vancouver firm Philips, Hager and North, with whom I have been exchanging ideas about this subject. Most investment portfolios throw off cash each month from interest and dividends. Don’t let that money sit idle. Reinvest it as soon as possible. When available, use dividend reinvestment plans to make the job easier. 

Discipline includes making regular cash additions to your portfolio — an automatic deduction plan at your bank is a good starting point. It also means establishing a schedule for portfolio reviews and keeping to it. And it means developing a strategy and implementing it. For example, maximizing contributions to registered plans if cash is available.

Patience: It’s possible to get rich quick. Those who took large positions in Shopify when the price was below $25 made huge returns in a few years, even with the recent price drop. But that’s rare. In most cases, wealth is built gradually, over time.

Rushing the process can often lead to bad decisions, such as buying overhyped penny stocks or selling blue chips because of a price dip. Build a quality portfolio and wait. It will pay off over time.

Gordon Pape is Editor and Publisher of the Internet Wealth Builder and Income Investor newsletters. For more information and details on how to subscribe, go to www.buildingwealth.ca. 

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