Ticker symbols combined with online brokerages enabling investors to trade at home has sparked flocks of traders to believe wealth can materialize overnight. This, of course, isn't true; making money in the stock market takes patience. Investing is simple: look for excellent, reasonably priced businesses and hold them for the long haul. Don't let mischievous know-it-all traders convince you otherwise. On that note, here are two common stock tips to avoid.
1. Buy low, sell high
The best way to make money in the stock market is to buy low and sell high, right? Wrong. Investors who make this strategy their focus will be surprised to find out that many of the stocks they buy on their way down unfortunately proceed further into the abyss. If you're lucky, some may stall or even bounce back up. But it only takes a few losers to hurt your portfolio.
What's the better way? Find excellent companies available for reasonable prices and hold them for the long haul. Attempting to profit from volatility is a gambler's game. Just look at Apple (AAPL 1.27%) over the past two years. Investors who attempted to buy Apple on its way down from $700 according to the "buy low, sell high" mantra have thus far been rewarded with further losses:
Now zoom out to 10 years:
Long-term investors have seen Apple shares appreciate 6,150%, while the market has appreciated just 76%. With the shares yielding close to 3% in dividends, you can bet that more than a few longtime Apple investors are living on Apple dividends. Even when you narrow the time frame down to five years, Apple shares are up 145% versus the S&P 500's paltry 13%.
2. Time the market
If you were investing in 2008, 2009, or even 2010, you'll likely recall at least a few friends or family members questioning your sanity. During those times, stock investing had a lot of negative sentiment around it; the stock market would crash again, people said. Turns out those were the best times to invest.
Timing the market won't get you anywhere special. Even worse, if market timing brings you success, you might become overconfident and lose a huge portion of your money the next time you attempt to time the market.
What's the better way? Once again, find excellent, reasonably priced companies to hold for the long haul. Over the last five years the S&P 500 has rewarded patient investors with a 76% gain -- not spectacular, but it's not bad either.
Be patient
Avoiding both of these stock tips requires patience -- a trait most investors seem to miserably lack. But if you are one of the few individuals Foolish enough to invest your money with a 10-year time horizon, I'll bet you'll make a great investor.
