Keys for successful investing

Whether you are looking to invest in a business, or purchase stocks and bonds, there are steps for successful investing. Knowing and utilizing these steps can make the difference between wasting your time and money, and making a profitable investment. Best of all these steps can help everyone from the beginning investor all the way up to the most experienced. Since one of the most important steps to investing, is planning and researching, knowing what you are doing before making a final purchase is crucial.Here are some keys for successful investing-

• Leave a margin of safety-Building a margin of safety into your investments is probably the single most important thing you can do, to protect your portfolio. There are several different ways you can incorporate this principle into your investment selection process, but the most helpful is to be conservative in your valuation assumptions. This is because investors have a habit of extrapolating recent events into the future. This means that when times are good, they become overly optimistic about the prospects of their investments. The major risk of this is not overpaying for excellent businesses, but rather, paying too much for mediocre businesses during generally prosperous times. To avoid this situation, it is important that you err on the side of caution, especially in the area of estimating future growth rates when valuing a business to determine the potential return.
• Only purchase businesses that you understand. In other words smart investors will understand their limitations. Many investors ignore this common sense and invest in companies that manufacture products outside of their knowledge base. The bottom line is that unless you truly understand the economics of an industry, and are able to forecast where a business will be, within five to ten years with reasonable certainty, you should not purchase the stock. In most cases, your actions are driven by a fear of being left out of a "sure thing" or forgoing a huge fortune. To be a successful investor, you don't have to understand esoteric fixed-income trading strategies, stock option valuation, or even advanced accounting. Many investors are unwilling to put some opportunities under the "too difficult" pile; and they pay serious price for their error. And ability to realistically examine your strengths and weaknesses is one way to avoid making major mistakes in your investing.
• Keep your eyes open at all times-You should always be on the lookout for the next opportunity. Investing powerhouses will spend their time traveling the country, examining companies, testing products, visiting management, and even quizzing their family and friends about their shopping trips. The same holds true for your portfolio. By simply keeping your eyes open, you can stumble onto a profitable enterprise far easier than scanning the pages of Fortune, or consulting high price investment advisors.
• Have a rational attitude toward price-It is important to keep in mind that there is one rule of mathematics that is unavoidable: the higher a price you pay for an asset in relation to its earnings, the lower your return. It's fairly simple. To often investors are derailed by other forces and they may be likely to panic and sell their proportional interest in the business simply because other people think it is worth less than you paid for it. However, if you have done your homework, provided an ample margin of safety, and is encouraged about the long-term economics of the business; you should view price declines as a wonderful opportunity to acquire more of a good thing. Investing means that a time value must be equated with your money. If you are unable to accept that, then investing may not be right for you.