It is never too late to make a resolution for 2024, even if it is in January 2024.
Any time is an opportune time for investors to reflect on their investment strategies and consider resolutions that can contribute to better outcomes in the stock market. Investing in stocks requires a thoughtful approach, continuous learning, and adaptability to market dynamics.
1. Set Clear Goals and Objectives: Start by defining your financial goals and objectives. Whether it's saving for retirement, funding your children's education, or simply growing wealth, having clear goals will guide your investment decisions. Understanding your risk tolerance and time horizon is crucial to creating a well-rounded investment strategy. The portfolio that is suitable for a young single worker is not suitable for a retired pensioner. You do not have to stay away from any type of investment completely, but the mix of investments in your portfolio should change according to your risk tolerance and time horizon. For example, the typical pensioner, who needs a regular income stream, would have more stocks that have a history of regular dividend yields compared to aggressive growth stocks.
2. Diversify Your Portfolio: Diversification is a fundamental principle of investing. Spread your investments across different asset classes, industries, and geographical regions. This helps reduce risk by not putting all your eggs in one basket. A diversified portfolio can better withstand market fluctuations and increase the potential for long-term returns. In the stock market, there should be sectoral diversification. Those who were caught up in the glove frenzy during the Covid 19 pandemic and invested most of their funds in glove counters would have suffered greatly when prices across all glove counters dropped.
3. Regularly Reassess and Rebalance: Markets are dynamic, and your investment portfolio should reflect changes in economic conditions and market trends. Regularly reassess your holdings and rebalance your portfolio accordingly. This involves selling assets that have become overweight and reinvesting in underrepresented areas to maintain your desired asset allocation. The mantra of staying invested for the long term does not mean locking up your investments and not monitoring them. Risk is such that the best of companies can be afflicted with long-term disadvantages.
4. Stay Informed and Educated: The stock market is ever-changing, and staying informed is key to making informed investment decisions. Commit to continuous learning by reading financial news, attending seminars, and staying updated on market trends. Understanding the factors that influence stock prices will enhance your ability to make informed investment choices. Knowledge is power, as the more information that you have about a stock, the better you will be able to estimate its intrinsic value. A knowledge-based investment helps you sleep better at night. Be an informed investment decision-maker.
5. Invest for the Long Term: While short-term market fluctuations are inevitable, successful investors focus on the long term. Avoid making impulsive decisions based on short-term market movements. Develop a patient mindset and commit to holding quality investments for the long haul, allowing compounding to work in your favour. It is said that one of the hardest parts of stock investing is the ability to do nothing when nothing should be done.
6. Control Your Emotions: Emotional decision-making can lead to poor investment choices. Resolve to stay disciplined during market highs and lows. Implementing a systematic investment approach, such as ringgit-cost averaging, can help mitigate the impact of emotional reactions and promote a more rational investment strategy. Available information levels the playing field, as all can access such information. As such, the differentiating factor between success and failure will hinge on how we manage our emotions—welcome to the world of fear and greed.
7. Understand the Companies You Invest In: Thoroughly research and understand the companies you invest in. Know their business models, financial health, competitive positioning, and growth prospects. This knowledge will empower you to make more informed investment decisions and withstand short-term volatility with confidence. Commit yourself to only investing in what you understand. You have no business investing in something you do not understand; it defies logic.
8. Monitor Fees and Expenses: Fees and expenses can erode your investment returns over time. Be mindful of transaction costs, management fees, and other expenses associated with your investments. Fees and expenses can creep up on you and whittle your earnings. We are often fixated on the substantial investments and divestments that we are making and tend to neglect these creeping fees and expenses.
9. Build an Emergency Fund: Before diving into the stock market, ensure you have an emergency fund in place. Having a financial cushion can help you avoid selling investments during unexpected expenses or market downturns, allowing you to stay invested for the long term.
10. Seek Professional Advice When Needed: If navigating the complexities of the stock market feels overwhelming, consider seeking professional advice. Financial advisors can provide personalized guidance based on your individual financial situation and goals. Make sure to choose a qualified and reputable advisor who aligns with your values and objectives. Make sure they are licensed by the Securities Commission.
Incorporating these resolutions into your investment strategy can pave the way for a more successful and rewarding year in the stock market. Remember that investing is a continuous learning process, and adapting to changing market conditions is essential. By setting clear goals, staying informed, and maintaining a disciplined approach, you can enhance your chances of achieving financial success in the stock market.
*The writer is a former chief executive officer of Minority Shareholders Watch Group and has over two decades of experience in the Malaysian capital market
