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The dos and don'ts of a profitable investment strategy

by , 24 April 2015

Unfortunately there is no blueprint to success on the stock market, but various studies show that certain factors can make a difference to your long-term returns.

So how can you include these factors in your investment strategy?

Read on to find out…

History pinpoints some key performers and laggards on the stock market

The studies that look into the long-term returns of certain stocks and sectors certainly have the benefit of hindsight, but you can learn a thing or two from them.

If you’re following a long-term investment strategy, these studies show that historically certain stocks have a better chance of success.

Avoid investing in the latest hot industry on the block

In many instances, investing in new industries leads to disappointment, Cris Sholto Heaton in Money Week explains. This is partly due to the excitement surrounding the companies, which leads valuations too high.

Once they reach a level that’s unjustified and a bubble emerges, it’s only a matter of time until the bubble bursts. Just think about the dotcom bubble.

Take into account the age of a listing before investing

There appears to be a link between the age of a company and its stock market performance.

If you examine the age of a stock from its initial public offering, the evidence is quite surprising…

  • If you’d invested R10 from 1980 to 2014 in companies that were on the stock market for less than three years, you’d have made R200.
  • If the companies had listings on the stock market for between four and seven years, you’d have made R330.
  • A company with eight to 20 years on the stock market under its belt would have made you R490.
  • And companies that held a listing for more than two decades would have turned that R10 into R610.

From this evidence you can see that older, more established companies beat new and exciting entrants to the stock market.

Focus on investing in companies with high barriers

If you look to companies that have strong brands or unique physical assets, you’re also likely to reap the benefits.

Just make sure you don’t pay over the odds for these stocks and hold onto them for the long-term.

Studies show companies with rife competition, in other words low barriers, perform poorly.

So there you have it, the dos and don’ts of a profitable investment strategy.

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The dos and don'ts of a profitable investment strategy
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