1)Buy and Hold is a great strategy but not ALWAYS the best strategy. I have had serious winners (up 30%) turn to losers (down 30%) in a hurry. I held on because I believed in buy and hold. Meanwhile, I would have been better off to take some off the table. I ALWAYS take a bit off the table every other quarter or so. This provides a psychological benefit of “winning” as well 🙂
2)Check a companies BOND RATINGS. This has become even more evident during the recent Coronavirus Crash. You are seeing companies that have paid dividends for decades have to cut their dividend. Many of these companies were downgraded to Junk and downgraded again. Look to see the standing of the bonds of the company you are investing in. Use the Moody’s website, create a free account. You can do this research quite easily for most large-cap stocks.
3)Check companies’ EARNINGS in detail. If you see the earnings dropping quarter to quarter over the course of a year or more, it may be time to get on another horse. These companies are not growing. It doesn’t matter if they pay a dividend if your TOTAL RETURN is seriously negative. Buy companies with some growth, whose revenues and earnings are increasing.
4)Debt/Equity Ratio-Once again, the Coronavirus Crash is showing just how important this is. If the company is overleveraged, in hard times like this, it will not be able to meet it’s debt. Invest in companies with PLENTY of cash and reasonable debt levels.
5)Don’t over diversify-I think one issue I had with my portfolio initially is simply too many positions to keep up with. Ideally, I’d like 20 at the most, maybe even 15 really good ones. You don’t HAVE to own every sector with individual stocks if you already have a good index fund.
6)Don’t fall for the P/E trap. What I mean is, just because something has a low P/E, does NOT mean it is undervalued. First and foremost, it is ridiculous to believe the rest of the investing world can’t look at a P/E number and ascertain whether it’s valued appropriately…..so yeah, it’s most likely “priced in.” Not all sectors have the same P/E values, tech can have higher P/E values. Companies on their last leg can have very low P/E numbers but that doesn’t make them undervalued.
7)Don’t forgo BONDS-Luckily, I never had this problem but it bears repeating. I often see people tell younger investors you don’t need to use bonds/bond funds. I think this is ridiculous. One of the reasons my IRA and Roth aren’t down as bad as they could be is because of the bonds. They have a HUGE purpose in a portfolio.
8)”Cash is Trash”. A famous investor recently said that and I know I’m taking it out of context but cash is DEFINITELY not trash. Cash is SUPER important and should be conserved so when a buying opportunity comes along, you can take advantage of it. One thing I did wrong last year is I just kept buying, all the time. Then, when I had lower prices, I didn’t have enough cash to buy. NEVER AGAIN! I think I want to have 10% of my portfolio in cash going forward. Get the money in the market but also don’t just throw it all in at once.
9)Cut losers QUICKER. That is right, when a company drops 20%, maybe it’s time to sell. Not always but sometimes. Personally, I’ve found when I get a quick drop like that I almost always come out better if I just sell. Have a game plan, once you lose a certain percentage, get out. Do not mindlessly use a buy and hold approach, reassess the situation.