4) Make consistency your mantra
Despite unbelievably challenging fundamentals and more than 12 years of disjointed markets, many investors remain hypnotized by the promise of buying something cheap and having it turn into the next Google (NYSE:GOOG), Apple (NASDAQ:AAPL) or Amazon (NASDAQ:AMZN).
This baffles me but I can understand their thinking. You’ve probably heard as many stories as I have over the years of people who have “made it big” buying some obscure company that turned into a gold mine. The greed gland is pretty powerful.
Just remember that huge profits come with huge risks. What people don’t talk about is the fact that many of the most famous traders of our time — guys like Rogers, Soros, and Paulsen for example — work with huge amounts of capital and leverage.
Unless you are prepared to accept the risks like they do as part of a carefully disciplined overall investment plan, don’t play the game. Volatility is not for the faint of heart.
For everyday investors, the real path to financial freedom and success over time is through smaller, consistent winners and making fewer mistakes.
This speaks to an investment philosophy grounded in strategies with higher probabilities of success like an emphasis on income and total returns, fortress-like stocks with “glocal” capabilities, put selling, resources and disciplined risk management.
5) Recognize that not all risks are the same
Wall Street’s lawyers love to point out that all investments involve risk. I agree. But that’s only half the story. What they don’t tell you is that not all risks are the same.
That’s why we prefer large “glocal” companies that are generally characterized by globally recognizable brands, have fortress-like balance sheets, and have long histories of raising dividends over time.
That’s not to say there isn’t a place for small cap stocks in your portfolio at the moment. There is — especially when you can identify a specific catalyst for future profitability like a patent or innovative game-changing technology.
My favorite small caps right now are related to medical, bio, and defense tech. All three segments are game changers that quite literally could affect millions of people and produce some outrageous returns, too.
Just keep the risks in line with the rewards.