Thursday, 26 November 2009

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

Magic formulas are not a good way of making plans. Reason and realism constitute a superior approach to making investment decisions. If you want to develop self-confidence as an investor, you have to remind yourself every day to have patience. Forget about short-term volatility and look at the big picture. Ask yourself where the world economy is headed for in the next five years.

Move your focus beyond the next quarter and see what the whole year will look like. Look for companies with a strong international presence. Even in periods of generalized gloom and doom, many countries continue to grow at good rates.

Rational investors tend to prefer enterprises that operate in stable markets, in particular if their dividend is maintained or increased. At the same time, risks can be minimized by investing in corporations, such as pharmaceutical multi-nationals, that have world-wide distribution for their products. These enterprises often purchase rights to new drugs from small laboratories and universities in order to distribute those medicines internationally.

How can you increase your confidence in making the right financial decisions? You do not need to know everything in order to become a good investor. Aim at identifying well-managed companies whose shares are priced attractively. If their products meet fundamental human needs efficiently, chances are that those businesses will do well.

Problems that you know nothing about might come up next week and make your shares go down. This is part of the game for better or worse. A claim of infallibility is something that you should leave to those who believe in magic formulas. Accept that you will make mistakes and do not fall into endless self-recrimination.

Make your investment decisions on the basis of reasonable expectations and stop worrying about the future. If you diversify your portfolio and buy shares of companies that operate in countries with good prospects of economic growth, you should be able to profit from the increasing prosperity around the world.


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