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TEN TIPS FOR SUCCESSFUL LONG-TERM INVESTOR

by Investopedia Staff, (Investopedia.com) (Contact Author | Biography) http://www.investopedia.com/articles/00/082100.asp While it may be true that in the stock market there is no rule without an exception, there are some principles which are tough to dispute. We'll review 10 general principles to help investors get a better grasp of how to approach the market from a long-term view. Keep in mind that these guidelines are quite general, each with different applications depending on the circumstance. But every point embodies some fundamental concept every investor should know. 1) Sell the losers and let the winners ride! - Time and time again, investors take profits by selling their appreciated investments, but they hold onto stocks that have declined in hopes of a rebound. If an investor doesn't know when it's time to let go of hopeless stocks, he or she can, in the worst-case scenario, see the stock sink to the point where it is almost worthless. Of course, the idea of holding onto high-quality investments while selling the poor ones is great in theory, but hard to put into practice. The following information might help: Riding a Winner - Peter Lynch was famous for talking about his "tenbaggers", his investments that had increased tenfold in value. The theory is that much of his overall success was due to a small number of stocks in his portfolio that returned big. If you have a personal policy to sell after a stock has increased by a certain multiple say three, for instance - you may never fully ride out a winner. No one in the history of investing with a "sell-after-I-have-tripled-my-money" mentality has ever had a tenbagger. Don't underestimate a stock that is performing well by sticking to some rigid personal rule - if you don't have a good understanding of the potential of your investments, your personal rules may end up being arbitrary and too limiting. Selling a Loser - There is no guarantee that a stock will bounce back after a protracted decline. While it's important not to underestimate good stocks, it's equally important to be realistic about investments that are performing badly. Recognizing your losers is hard because it's also an acknowledgment of your mistake. But it's important to be honest when you realize that a stock is not performing as well as you expected it to. Don't be afraid to swallow your pride and move on before your losses become even greater! In both cases, the point is to judge companies on their merits according to your research. In each situation, you still have to decide whether a price justifies future potential. Just remember not to let your fears limit your returns or inflate your losses. 2) Don't chase the "hot tip" - Whether the tip comes from your brother, cousin, neighbor, or even broker, no one can ever guarantee what a stock will do. When you make an investment, it's important you know the reasons for doing so: do your own research and analysis of any company before you even consider investing your hard earned money. Relying on a tidbit of information from someone else is not only an attempt at taking the easy way out, it's also a type of gambling. Sure, with some luck, tips may sometimes pan out. But they will never make you an informed investor, which is what you need to be to be successful in the long run. 3) Don't sweat the small stuff - In tip No.1, we explained the importance of realizing when your investments are not performing as you expected them to - but remember to expect short-term fluctuations. As a long-term investor, you shouldn't panic when your investments experience short-term movements. When tracking the activities of your investments, you should look at the big picture. Remember to be confident in the quality of your investments rather than nervous about the inevitable volatility of the short term. Also, don't overemphasize the few cents difference you might save from using a limit versus market order. Granted, active traders will use these day-to-day and even minute-to-minute fluctuations as a way to make gains. But the gains of a long-term investor come from a completely different market movement - the one that occurs over many years - so keep your focus on developing your overall investment philosophy by educating yourself.

4) Do not overemphasize the P/E ratio - Investors often place too much importance on the P/E ratio. Because it is one key tool among many, using only this ratio to make buy or sell decisions is dangerous and ill-advised. The P/E ratio must be interpreted within a context, and it should be used in conjunction with other analytical processes. So, a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued. (For further reading, see our tutorial Understanding the P/E Ratio .) 5) Resist the lure of penny stocks - A common misconception is that there is less to lose in buying a low-priced stock. But whether you buy a $5 stock that plunges to $0 or a $75 stock that does the same, either way you'd still have a 100% loss of your initial investment. A lousy $5 company has just as much downside risk as a lousy $75 company. In fact, a penny stock is probably riskier than a company with a higher share price, which would have more regulations placed on it. (For further reading, see The Lowdown on Penny Stocks .) 6) Pick a strategy and stick with it - Different people use different methods to pick stocks and fulfill investing goals. There are many ways to be successful and no one strategy is inherently better than any other. However, once you find your style, stick with it. An investor who flounders between different stock-picking strategies will probably experience the worst, rather than the best, of each. Constantly switching strategies effectively makes you a market timer, and this is definitely territory most investors should avoid. Take Warren Buffett's actions during the dotcom boom of the late '90s as an example. Buffett's value-oriented strategy had worked for him for decades, and - despite criticism from the media - it prevented him from getting sucked into tech startups that had no earnings and eventually crashed. 7) Focus on the future - The tough part about investing is that we are trying to make informed decisions based on things that are yet to happen. It's important to keep in mind that even though we use past data as an indication of things to come, it's what happens in the future that matters most. A quote from Peter Lynch's book " One Up on Wall Street " about his experience with Subaru demonstrates this: "If I'd bothered to ask myself, 'How can this stock go any higher?' I would have never bought Subaru after it already went up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that." The point is to base a decision on future potential rather than on what has already happened in the past. 8) Investors adopt a long-term perspective - Large short-term profits can often entice those who are new to the market. But adopting a long-term horizon and dismissing the "get in, get out and make a killing" mentality is a must for any investor. This doesn't mean that it's impossible to make money by actively trading in the short term. But, as we already mentioned, investing and trading are very different ways of making gains from the market. Trading involves very different risks that buy-and-hold investors don't experience. As such, active trading requires certain specialized skills. Neither investing style is necessarily better than the other - both have their pros and cons. But active trading can be wrong for someone without the appropriate time, financial resources, education and desire. (For further reading, see Defining Active Trading.) Most people don't fit into this category. 9) Be open-minded when selecting companies - Many great companies are household names, but many good investments are not household names (and vice versa). Thousands of smaller companies have the potential to turn into the large blue chips of tomorrow. In fact, historically, small-caps have had greater returns than large-caps: over the decades from 19262001, small-cap stocks in the U.S. returned an average of 12.27% while the S&P 500 returned 10.53%. This is not to suggest that you should devote your entire portfolio to small-cap stocks. Rather, understand that there are many great companies beyond those in the Dow Jones Industrial Average, and that by neglecting all these lesser-known companies, you could also be neglecting some of the biggest gains.

10) Taxes are important, but not that important - Putting taxes above all else is a dangerous strategy, as it can often cause investors to make poor, misguided decisions. Yes, tax implications are important, but they are a secondary concern. The primary goals in investing are to grow and secure your money. You should always attempt to minimize the amount of tax you pay and maximize your after-tax return, but the situations are rare where you'll want to put tax considerations above all else when making an investment decision (see Basic Investment Objectives). Conclusion In this article, we've covered 10 solid tips for long-term investors. We started off saying that there is an exception to every rule, and we can't overemphasize this point. Depending on your circumstances, you might even disagree with some of these pointers. However, we hope that the common sense principles we've discussed benefit you overall and provide some insight into how you should think about investing. by Investopedia Staff (Contact Author | Biography) Investopedia.com believes that individuals can excel at managing their financial affairs. As such, we strive to provide free educational content and tools to empower individual investors, including more than 1,200 original and objective articles and tutorials on a wide variety of financial topics.

ARE STOCKS THE BEST LONG TERM INVESTMENT?

http://www.economymodels.com/stockstime.asp It has often been suggested that investments in the stock market are better than any other investments over the long term. During the stock market mania of the late 1990's, this was the mantra that was repeated over and over in order to sell mutual funds to inexperienced investors. But is it true? Are shares in publicly listed companies better than any other type of investment in the long run? And if so, what exactly is the long run? Many economists certainly seem to believe in the stock market. They are able to show statistics that support their case and have developed elaborate theories that seem to prove the point. This hasn't always been the case. In the early eighties, for example, the same theories that are now used to support the stock market, were used by economists to support the case that commodities would produce the same long term yield as common stocks. And based on historical price statistics, that certainly seemed to be the case. We all know what has happened with commodity prices since then. So what are the economists' arguments? Basically, there are two different arguments - one theoretical and one statistical. The theoretical argument is usually some variation of a capital market model, usually the famous CAPM model. Although, CAPM is a very elegant model, it is in our opinion not applicable to real capital markets. The assumptions underlying the model are simply not correct. The CAPM model will be discussed more in depth in another essay at this site. We will not reprise it here. Suffice it to say that CAPM was the model that was used to suggest investors should buy commodities in the early eighties. At first sight, the statistical argument is much more convincing. When looking back at historical stock market returns over any extended period it seems that the stock market returns are much higher than returns from any other investment. Admittedly, the long term has been long, and in some cases way exceeding a life time. Nevertheless, stock market investments seem to have been very profitable. There are several fundamental flaws in this line of reasoning, however. These will be discussed below. The first flaw is a mathematical error made by those using past performance to predict the future. When using all of the statistical cook-book methods, a fundamental assumption is that

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the data points used as input to the method are chosen at random from the set of data points which you study. What does this mean? In a typical study, the set of data points are all daily stock market returns of the past as well as the future. A random selection would include future as well as historical returns. Of course, past returns we know, but we can't possible know what future returns will be. Essentially, you can't use the statistical cook-book methods to say anything about the future using historical data. Other mathematical errors are often made by economists as well, including assumptions that daily returns are independent, or equally distributed or that they have finite variance. These assumptions may or may not be true, but they can't be made without justification simply because they make calculations easier. Using statistics like this is not science, but more like alchemy. I won't discuss these issues further, as they have been extensively discussed elsewhere. There is another fundamental flaw in the statistical argument that is rarely discussed. When studying the historical price data it is common to concentrate only on the best performing stock markets. For example, long term studies using price data from the Russian stock market are never done. After the communist revolution, the Russian stock market effectively went to zero. In fact almost all of the world's stock markets have underperformed the US market in the last century or so. Today, it seems natural to study the US stock market, but for an 19th century investor, some of the most interesting growth regions of the world were Russia and South America. The United States were a poorly developed country plagued by civil war. Using hindsight when selecting markets to study is usually not an intentional error. It is natural for economists to study the stock markets in their own country, and most economists work in the economically successful countries. Many of the less fortunate countries of the world don't even have a stock market to study anymore. There is a natural tendency to ignore the markets that have failed. When looking at historical stock market returns, it makes sense to think about why returns have been as high as they have. In the really long term, stock investments can't grow faster than the profits of the companies invested in. Over the long run, profits tend to be relatively stable as a fraction of revenue, and in any case, the profit level will always be bounded by the total revenue of the company. This means that in the long term, profits can't consistently grow faster than revenue. What we have seen in the last century, however, is that stock prices have increased much faster than revenues and profits. This is something that can't continue. Maybe the current PE ratios are more correct than those of the 19th century maybe they are not. But the trend of higher PE ratios cannot continue indefinitely. The fact is that higher valuations have contributed a lot to the over-performance of the stock markets of the last century. This is clearly unsustainable. There are other factors that have also been beneficial to the stock market over the last century or so. These include a higher pace of invention and faster growth than at any other time in history. They also include the fact that the world has become a much more safe, stable and peaceful place to live. Wars used to be much more common than they are today. Maybe this development is sustainable - maybe it isn't. While conditions have been favorable for stocks in the last century, they have been most unfavorable for alternative investments - particularly for bonds. This has to do with the advent of central banking and fiat money. Since the inception of the Federal Reserve system in the United States, the dollar has lost 95 percent of its purchasing power. Before the 20th century, the British pound had a fixed value in relation to silver and later to gold for hundreds of years (with a few brief interruptions). Although the purchasing power of the pound varied with the price of precious metals, over the long term, the purchasing power remained fairly constant until the time of devaluations and easy money in the 20th century. Since then, the pound has lost most of its former value.

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While inflation has been rampant, interest rates have been kept artificially low. The policy of the 20th century has been the stimulation of demand, where-as the policies of earlier periods have been to stimulate production. The demand policy has resulted in growth, but at the cost of rapidly rising debt levels. Some of the greatest fortunes in history have been made by investments in debt instruments. In the 20th century, great fortunes have been lost in bonds. The last one hundred years are clearly not representative of previous time periods. It seems likely that they will not be representative of the future either. In my opinion, most of the arguments are supposed to prove that the stock market provide superior returns can be easily dismissed. They simply don't hold up to scrutiny. That doesn't necessarily mean that the conclusion is wrong, though. Maybe the stock market does produce superior results. Most investors certainly believe so - or rather, they are convinced that it does. The stock market has a tendency to discount what most investors believe, though. If the stock market believes that the companies in a broad, market weighted stock market index grow faster than interest on a risk free investment, then maybe that ought to have been discounted in the price of the stock market index. Do we have an answer to our questions? Sadly, no. While there is no evidence that the stock market has superior returns, there is also no conclusive evidence it does not. My personal belief is that there is no simple way to make money in capital markets. Just putting all your money in a mutual fund is no safe way to get rich, even in the long run. If it were that easy, we would all do it, and soon enough, no-one would have to work anymore. Investing in shares of stock at the right price will always be a way to make money, but I believe that the price relative to fundamentals is a critical determinant of success or failure in stocks, just as in any other investment. While stock markets have had an amazing run for the last century and a half, that is certainly no guarantee that they will in the future. Site: http://www2.uol.com.br/aprendiz/guiadeempregos/especial/artigos_061003.htm Bolsa de Valores tem grupo de investidores com mais de 70 anos Pequena, curvada, cabelos completamente brancos, aparncia frgil e roupas simples: aos olhos de seus vizinhos do bairro de Copacabana , dona Zuleika Fonseca parece apenas mais uma simptica vov. Fosse feita uma enquete, provavelmente nenhum deles adivinharia que, aos 82 anos, a verdadeira vocao que corre em suas veias outra: a de investidora apaixonada pelo mercado de aes: " No tive filhos, sou solteirona e sempre gostei de lidar com dinheiro. Descobri a bolsa de valores na dcada de 60 e nunca mais parei " . No momento em que comea a falar, dona Zuleika surpreende pela objetividade, lucidez e nvel de informao. Detesta computador, mas leitora vida de jornais, revistas e relatrios. Sempre fez questo de escolher pessoalmente as aes que compem sua carteira e de desenhar toda sua estratgia no mercado. Investidora agressiva, gosta de operar no mercado de opes. Mas parou porque admite que, aos 82 anos, esse grau de risco seria demais para ela. O resultado de tudo isso? Trs apartamentos comprados na zona sul carioca e uma carteira de papis com um valor de mercado interessante e diverso diria garantida. "Escuto algumas dicas do pessoal da corretora e de outros investidores, mas sempre acabo indo pela minha cabea", conta ela, que administra tambm o patrimnio da famlia. "Ela a nossa ministra da economia", brinca a irm e companheira inseparvel, Zildete Fonseca. Para quem pensa que dona Zuleika um caso isolado no mercado acionrio, a corretora carioca gide, por onde ela opera, prova o contrrio. Na ltima quinta-feira a corretora reuniu apenas uma pequena parte de seu grupo de investidores com mais de 75 anos na tradicionalssima confeitaria Colombo para que eles contassem um pouco de suas histrias de paixo pelo mercado de capitais. Paixo que, alis, no gratuita. Investir na bolsa para eles

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significou poder realizar sonhos que seriam impossveis sem a alta significativa dos bem escolhidos papis que compuseram suas carteiras nas ltimas quase quatro dcadas. Foi graas a isso que dona Cla Silva, 76 anos, professora aposentada da Tijuca, zona norte do Rio, pde viajar e conhecer o mundo inteiro. tambm com o ganho das aes que a aposentada Edith Arruda, 82 anos, pode manter hoje o padro de vida que sempre teve, mesmo aps a morte de seu marido, cuja penso no lhe rende nem R$ 1 mil por ms. Tambm graas ao ganho que teve e continua tendo com os papis que o ex-comercirio Ermelindo Tozzato, 82 anos, conseguiu montar hoje uma carteira diversificada de investimentos que inclui fundos e imveis, alm de suas aes, das quais no abre mo. Todos garantem que sempre ganharam na bolsa e que as perdas ocorreram, sim, mas foram largamente superadas pelos ganhos e minimizadas pela diversificao. Os maiores ganhos de quase todos foram obtidos com escolhas aparentemente simples: Companhia Vale do Rio Doce, Banco do Brasil, Souza Cruz e Petrobras so respostas unnimes pergunta "com que papis voc ganhou mais dinheiro?". Um ou outro tem alguma histria de aposta particular bem-sucedida, mas na base dos ganhos sempre esto as empresas mais slidas. por conta disso que nem a maior sumidade em planejamento financeiro do mundo seria capaz de convenc-los a zerar sua parcela em renda varivel, como rezaria a cartilha de avaliao de risco de vrias instituies financeiras para as pessoas nessa faixa de idade. "Meus filhos esto criados, no tenho netos e a vida para aproveitar. Tenho algum dinheiro investido na renda fixa, mas pouco. Sei que dizem que isso errado, mas nenhum outro investimento teria me permitido tudo o que eu consegui com as minhas aes", diz Cla Silva. Ela comeou a comprar papis por acaso, na virada da dcada de 60 para a de 70 por indicao de um amigo que gostava de investir em aes. "Era o boom do mercado acionrio, eu no tinha muito dinheiro para aplicar, mas comecei com pouco mesmo, sempre fui cautelosa, escolhia empresas slidas e o investimento foi dando certo. Com os ganhos, conheci o mundo todo, Oriente, Estados Unidos, fui para a Europa j trs vezes. Com meu salrio de professora jamais daria para fazer isso", comemora Cla, que vive tendo que explicar para as amigas qual o 'milagre' que faz para conseguir multiplicar o seu dinheiro. Ex-diretor de uma empresa que negociava tecidos por atacado, Ermelindo Tozzato lembra com saudade dos tempos ureos da Bolsa do Rio de Janeiro, quando ainda era possvel comprar papis das empresas da regio. "As primeiras aes que comprei, na dcada de 60, foram Nova Amrica, Amrica Fabril e Fbrica de Tecidos So Pedro de Alcntara, era um setor que eu conhecia bem", diz, lembrando de um tempo em que o termo IPO (Initial Public Offerings) no existia, mas abertura de capital de companhias no faltava como hoje. "Naquele tempo, guardar dinheiro era s na Caixa Econmica Federal, ou comprando letras de cmbio, isso se usava muito. Comecei a operar na bolsa pela Corretora Alexandre Dale, que era do av do meu atual consultor, Jlio Dale. Nunca perdi muito porque no sou especulador, no fao 'day trade' (compra e venda de aes no mesmo dia)", conta ele, antenadssimo com as novas nomenclaturas do mercado. Blue chip no tempo de Tozzato significava White Martins, Brahma, Souza Cruz, Belgo Mineira. Ganhou algum dinheiro com algumas delas, mas a ao que habita h mais tempo sua carteira a de um banco que lhe pareceu muito promissor anos atrs. "O Bradesco no era essa potncia toda que hoje. Eles precisavam captar clientes e davam mil facilidades. A menina que atendia no balco me ofereceu as aes quando fui abrir a conta", lembra Tozzato. At hoje ele tem tanto a conta corrente no Bradesco quanto os papis e j perdeu a conta de quanto ganhou com a variao e os dividendos. "Mantenho o papel na carteira porque continuo achando interessante", avalia ele. "Hoje j diversifiquei minha carteira. Com o

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dinheiro que ganhei na bolsa comprei imveis e aplico em fundos de renda fixa. Mas continuo com minha carteira de papis", garante. Belssima e elegante aos 82 anos, dona Edith Arruda sempre teve uma queda pelo mercado de aes e s no investiu mais porque no encontrava adeptos na famlia. "Meu marido ficava nervosssimo com isso. Mas ainda bem que eu insisti em manter sempre meus papis. Alm de ser cautelosa e diversificar, acho que tive sorte tambm, aproveitei as grandes altas e realizei uma boa quantia antes da ltima baixa", conta ela, que consegue manter seu timo padro de vida graas ao tino que sempre demonstrou para investir. "Em 1971, vendi um apartamento e apliquei tudo na bolsa. Logo depois foi aquela maravilha. Meu marido ficava louco, me implorava para sair. Ele dizia: no possvel, voc ganha dez mil todo dia, uma hora isso acabar mal. De tanto ele falar resolvemos comprar outro imvel, vendi as aes bem na hora, antes da queda", lembra. Hoje dona Edith mantm uma carteira de aes bem menor, mas no consegue ficar longe da bolsa. "Aplico em empresas mais slidas, como Souza Cruz, que eu comecei a comprar quando custava R$ 10. Outra coisa que eu sou sempre compradora, no gosto de vender as aes", orgulha-se. Hoje as aes da empresa j valem R$ 25. (Valor Econmico 01/10/03)