Wednesday, 25 November 2009

How to develop self-confidence as an investor
(Part 1 of 2)

During adverse economic periods, many people are afraid of buying shares of any company. Fresh memories of crashing stock markets test the nerves of local and international savers, who often prefer to hold cash rather than take any risks.

Exaggerated fear is, more than not, a mistake. If you act prudently, every period can be good to make financial commitments. When bad news and pessimism reign, those are times of great opportunity to purchase shares of solid companies at low prices.

Stories of financial collapse reported by the media succeed in terrifying many people out of the stock market. At the time of writing this, you can hardly turn on the radio or open a newspaper without learning about one more company on the brink of bankruptcy.

However, in investing, like in everything else, realism triumphs over anxiety and pragmatism over worry. Gloomy reporters seldom look objectively at facts. On many occasions, share-holders would be better off if they keep a cool head and avoid liquidating their stocks at fire-sale prices.

The first step to develop self-confidence as an investor is to realize that nobody possesses the ability to predict exactly when shares are going up or down. There is no magic formula for successful investing. The best you can do is to strive to keep well informed and make rational decisions. Those two are the factors that will improve your financial results and increase your self-reliance.

After a period of inflation or deflation has begun, some people will claim that they had predicted what was going to happen, but these are often the same persons who had previously made many wrong predictions. A broken clock gives you the right time twice per day, but cannot provide you accurate time information.

To be continued in Part 2


[Image by Chuck Nhorus under Creative Commons Attribution License. See the license terms under]

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