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4 Ways to Invest Through the Noise and Win

Investors are getting nervous as volatility in the stock market has picked up immensely in the past month. Everywhere you turn, you'll find a host of possible explanations for everything that's going on, along with advice for how you should respond to it. But when the next crisis could be just a day away -- with a brand-new set of different recommendations to follow in light of it -- it's increasingly difficult for long-term investors to stay on track.

Investing doesn't have to be as complicated as some professionals make it seem. Sure, you can spend your entire life trying to learn everything you can about investing without coming close to figuring it all out. If you'd rather do some other things in your spare time, though, let me suggest a few tips to calm you down and keep you focused on what's really important with your money.

1. Invest on your schedule
Somewhere, people got the notion that just because you can get second-by-second stock price information, you actually have to use it. You don't.

The decisions that companies make that have the biggest impact on their futures take a long time to pan out. Although you'll get updates on their progress along the way, letting market temper-tantrums scare you out of a stock is just about the worst thing that can happen. Set a schedule for reviewing your investments that you can live with, and don't worry about the intraday micro-movements of share prices.

2. Know what you're looking for
Too many investors buy stocks without knowing why they're buying them. If you don't have an idea of what should define success for a company, then you won't have any guide to whether it's succeeding or failing except the stock price -- and that can be misleading.

Mortgage REITs provide a good example. Recently, Annaly Capital (NYSE: NLY  ) , American Capital Agency (Nasdaq: AGNC  ) , and Chimera Investment (NYSE: CIM  ) have started cutting their dividends -- several times, in the cases of Annaly and Chimera. If you just bought them thinking their yields were high, then these cuts may be scaring you out of your position.

But if you're looking for a hedge against a possible double-dip recession, mortgage REITs are still delivering what you want. As a full economic recovery keeps getting pushed back, the window of opportunity for above-average returns from these mortgage REITs gets longer -- and in American Capital Agency's case, has helped push the REIT to new highs.

3. Have a core
Investing in individual stocks gives you special opportunities you can't get from more diversified alternatives. But when your entire net worth is on the line, it can be hard to stay unemotional about your stocks -- especially when bad things are happening to them.

To tone down your stress level, consider having a substantial core position in a set of mutual funds or ETFs that give you diversification and are more stable than individual stocks. That way, even if the worst happens to your stock picks, you'll still be able to sleep at night.

4. Have a view
If you don't know what you believe about a stock, then you're susceptible to believe everything anyone says about it -- even if it's the exact opposite of what you believed before. It's easy to have your opinion whipsawed back and forth.

Natural gas is a great example. On one hand, it seems like everyone trumpets gas as a great growth play, and small oil and gas producers have seen phenomenal growth numbers. Yet supply has overwhelmed demand, as United States Natural Gas (NYSE: UNG  ) has lost more than two-thirds of its value over the past year due to a combination of falling prices and unfavorable conditions in the futures markets it tracks. Moreover, Chesapeake Energy's (NYSE: CHK  ) mad dash to recover from CEO Aubrey McClendon's various controversial actions hasn't brought any confidence to the industry.

Taking a stand will help you avoid getting whipsawed. You shouldn't be totally closed-minded to the possibility that you're wrong, but having a smart, reasoned view on your stocks will stop you from second-guessing yourself every time something bad happens.

You can do it
As hard as it is to sort through all the information available to you, the best investors tune out most of it and focus on what's important. By joining them, you can invest through the noise and win.

Get some great stock ideas tailored for long-term investors. You'll find three in The Motley Fool's special report on long-term investing -- but only if you click here and start reading your free copy right now.

Fool contributor Dan Caplinger loves his noise-cancelling headphones. He doesn't own shares of the companies mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool owns shares of Annaly Capital and Chesapeake Energy. Motley Fool newsletter services have recommended buying shares of Annaly Capital and Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy speaks softly and carries a big stick.


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  • Report this Comment On June 09, 2012, at 10:50 AM, kingcrab63 wrote:

    I realy like reading your picks. I haven't been a investor in stocks till a few months ago. and i'm up, thanks to your picks. I try to read every thing you put out. I wish every one good sailing.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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11/26/2014 3:59 PM
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American Capital A… CAPS Rating: ****
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