It can be intimidating, trying to invest on your own. Even easy-to-understand companies like Apple
Fortunately we have a history of illustrated success from some of the world's most prominent businessmen to guide us. These masters have figured out ways to take advantage of great stock opportunities by implementing some simple tactics -- and these are the tenets that you should follow when you're investing on your own.
Riding the market solo
Leading investors like Warren Buffett and analysts for our Motley Fool Million Dollar Portfolio look for companies with similar traits. You can reap huge benefits in your portfolio by following four simple steps:
"In business, I look for economic castles protected by unbreachable moats."
-- Warren Buffett
The first thing you want to do is look for companies with economic moats; that is, businesses that have distinctive advantages in their competitive landscape. For instance, online jewelry retailer Blue Nile
"The Defensive Investor must confine himself to the shares of important companies with a long record of profitable operations and in strong financial condition."
-- Benjamin Graham
Finding a company with a strong balance sheet and record of success is extraordinarily important. Apple, for instance, has absolutely no debt on its books and consistently generates free cash flow. In addition, it's grown revenues by more than 35% in the past five years and has beaten analyst expectations for the past 28 quarters! It's no surprise, then, that it's one of the best-performing companies in the past decade.
"Management is doing things right; leadership is doing the right things."
-- Peter Drucker
Short and to the point, Drucker identifies the third most important factor in finding a great stock: great leadership. Most significantly, we look for companies that have substantial inside ownership (so management's goals are aligned properly with shareholders'), long management tenure, and superior stewardship. Look at Green Mountain Coffee Roasters
"Diversification should be the cornerstone of your investment program."
-- Sir John Templeton
In order to spread out the risk in your portfolio, you should choose stocks in various segments so as to minimize the possibility of simultaneous losses. This doesn't mean you should go outside your area of competence; if you don't know anything about energy, don't buy an oil stock. However, a good example might be buying a recession-proof stock like Family Dollar Stores
Aligning your goals
When I think I have found the solution, I must prove I am right. I know of only one way to prove it; and that is, with my own money."
-- Jesse Livermore
That's why we created the Million Dollar Portfolio -- where we put our own money on the line, and are managing the portfolio so our Fool Community can follow along. Using the four tenets above, we detail exactly what you have to do to effectively take advantage of today's incredible buying opportunities. Not only will you learn about asset allocation, but you'll see all of our past and present stock picks as team members tell you what to buy, when to buy, and how much to buy.
With the Fool's own money on the line, you know that we're choosing the best stocks across all sectors in order to create the most robust portfolio possible.
If you're interested in having an all-access pass to follow Fool co-founder Tom Gardner and his Million Dollar Portfolio, click here for more information.
Fool contributor Jordan DiPietro owns no shares of the companies above. Green Mountain Coffee Roasters and Blue Nile are Motley Fool Rule Breakers picks. Apple, Activision Blizzard, and Netflix are Motley Fool Stock Advisor picks. The Fool's disclosure policy recently had a dream in which it spoke to Benjamin Graham on the phone.