The most prevalent mistakes that many investors make today are commonly rooted in the desire to get rich quickly. The truth of the matter, however, is that the benefits of stock investing are maximized by those who are looking to get rich gradually.
Think Like an Owner
One of the easiest ways to succeed as an investor is to think like one. Investors are buying fractional pieces of a business. So those that are really investing are buying companies that they would love to own outright. (For related reading, check out Warren Buffett: The Road To Riches.)
Ownership Has Its Benefits
The first thing that thinking like an owner of a business promotes is that it keeps your investment list short and sweet. Very few of us are equipped to manage 50 businesses, so it makes no sense to attempt to hold a portfolio of 50 businesses.
Secondly, there aren't many folks who want to own businesses that are run poorly, aren't making any money or are loaded with debt. Yet the speculative urges of market participants seem to grow during bull market rallies.
A business like apparel manufacturer G-III (Nasdaq:GIII), which is seeing both the top and bottom line decline and trades for over 20-times free cash flow, is up over five-fold this year. Yet, a quality retailer like Target (NYSE:TGT) which is still profitable and generating decent sales in this environment hasn't come close to performing like G-III.
But which business would you rather own? Interestingly, many people are doing two different things when it comes to picking the stock to invest in and answering the ownership question. Since GIII began trading in 1990, the total return was not even 100%; for Target, the total return was over 1,000%.
Simplify Investing
Investors often overcomplicate the investment process. Simply stick to what you know and always ask yourself if you would be happy to own 100% of any company in which you want to buy stock. If the answer is no, then don't even buy one share of stock.
The Bottom Line
Such thinking leads to investments in quality companies. No one wants Florida land today, but they will in the future, especially waterfront property like St. Joe (NYSE:JOE). Therefore, investors should start looking for opportunities like this one for long-term growth. Speaking of land, it could be welcoming to own a company like Cresud (Nasdaq:CRESY), which owns agricultural land that produces food. Keep your eyes open and don't look for a quick money grab - plan to go the distance.
(Keeping things simple and knowing what you own will go a long way in minimizing investing mistakes and maximizing investment gain. For further reading, check out Stock Picking Strategies: Value Investing and The Value Investor's Handbook.)
