Blog Post 6

Synthesis

http://www.dividenddiplomats.com/wp-content/uploads/2014/09/REIT-Investing-Up.jpg

During my time researching how to invest prosperously, I obtained information about success stories from model investors such as Warren Buffett and Chris Camillo as well as tactics that have failed such as not diversifying and letting emotions dictate decisions. When asked how to invest prosperously, using the knowledge I’ve gained, I would respond that the best tactics are to diversify your portfolio, think rationally, and ultimately use as many resources as available to make well-informed decisions.                  

According to the article, “Investing disasters - when bad investments go even more bad!,” one up-and-coming investor, John, made the rookie mistake of not diversifying his portfolio. He put all of his investments into 3 small company’s stocks which is  the equivalent of a cardinal sin in investing. This was the first mistake that led to a downhill spiral of John’s capital. On the contrary, Warren Buffett, the most successful investor of all time, has one of the most diverse investment portfolios. Not only does he have a diversity of stocks, he also has holdings in many other companies not sold on the stock market. It is these outside of the box tactics that investors must use in order to invest prosperously.

According to the article, “Five Minute Investing: Things to Avoid,” falling in love with a stock is one of the most important things to avoid when investing because this has to do with emotion and nothing else. Investing is not a business of emotion, but instead strategy and rationality. Even if a stock has done so well for you for so many years, most of the time, this will come to an end. Investors often believe that “bull markets” will go on forever. By thinking irrationally like this, investors are setting themselves back. Another irrational way to invest would be the common practice of buying a stock in a downward trend. Although this may seem like a high risk high reward situation, which it is, the risk is usually far too high to be a smart investment. In order to yield a profit on these types of stocks, two things must go right. First, the investor must be able to predict which stocks will actually end their downward trend before going all the way to zero. Second, the timing of this must be impeccable, the investor must know exactly when it will turn around and buy the stock at the right price to yield a profit. The chances of being able to predict both of these is very slim, therefore, not a good investing decision. If investors practice more rational thinking, they will not be put in those sticky situations.

The last and possibly most important skill to invest prosperously is the ability to use your resources to make well-informed decisions. Successful investor, Chris Camillo, perfected this strategy. According to the article, “How One Amateur Investor Spots Stocks Before Wall Street,” Camillo used being an amateur as an advantage over the professionals by using his “more diversified set of friends and colleagues throughout the country that know more things than those on Wall Street”. He used people close to him to provide him with useful information about companies. For example, when his wife informed him that Target was going to do the Missoni line, he immediately went to Target to try and judge whether it was going to be successful or not. Once he realized it was a hit, he immediately invested. Within 48 hours, he had already tripled his investment. Warren Buffett, another successful investors was resourceful by reading about every aspect of the company he was investing in by studying their company records and researching their management.

There is no magic method that can guarantee success when investing, however, the only way to truly ensure safety when investing is to diversify your portfolio, think rationally, and ultimately use as many resources as available to make well-informed decisions. These tried and true investing tactics have been tested by some of the most successful investors such as Warren Buffet and Chris Camillo. Investing comes with a risk but there are ways to ensure some level of security.