Find an investing strategy and stick with it
I am rarely unequivocal, but when it comes to investing, I have one overriding conviction: Good things happen to the cheap stocks of out-of-favor, industry-leading companies.
My experience over almost 30 years of investing has shown this to be true. When great companies stumble and their stock price declines, I have frequently been presented with my most successful investment opportunities. Though this investing principle may sound vague or incomplete, simply buying great companies at a discount forms the core of my investing discipline.
But it may not be the strategy that works for you. If you followed my discipline, you would have missed owning the stocks of some of the iconic growth stocks of our generation, such as Netflix or Chipotle. Consequently, you would have also missed out on significant appreciation. Instead, if you are like me, you may have purchased shares in a company such as Apple after the slowdown in iPhone share growth a few years back or JP Morgan after the financial meltdown of 2008. (I own shares in both.)
Rarely do stocks like these double in one year like the shares of the most interesting growth stocks. But over time the empirical research shows that owning these stocks (we will call them value stocks) has actually generated superior performance when compared to the shares of go-go growth stocks. Each strategy has supporters and each strategy fits a certain investing profile or discipline.
Value stock investing — buying the depressed shares in great companies — fits my investing profile. And that is the point of establishing an investment discipline. It has to be yours. It must line up with your willingness to take risk, your objective for total return and the time you can commit to the process. Your investing discipline must work for you on every level.
Over my decades of investing, I have established 11 intelligent investing rules. You may identify two or 20. The important thing is not to worry about the latest trends or the most-talked-about companies but rather to adhere to your discipline. Like a diet, losing weight is less dependent on which diet you follow than it is upon sticking to the diet you choose.
Intelligent Investing Rule #1 discussed in my new book states: "Having any investment discipline is better than having no discipline at all; once your investment discipline is established, never deviate." And this, I hope, will resonate: The most successful investors don't chase trends. Instead, they establish their strategy and follow it come hell or high water. That is how you make money in stocks over time — in deluge or drought.
Nancy Tengler spent two decades as a professional investor. She is an author, financial-news commentator and university professor; her book, "The Women's Guide to Successful Investing," will be released by Palgrave Macmillan this month. Reach her at nancy.tengler@cox.net.