No One Cares More About Your Money Than You Do.

There are a lot of different ways to invest in the stock market.

Each method has pluses and minuses.

Right now, things are uncertain in the world, and investing in the market may make some people uneasy. I’ve always considered periods of uncertainty to hold opportunity.

Investing in stocks isn’t for the faint of heart. It’s a calculated risk and you shouldn’t invest money that you are not able to lose. Investing is part of a long term strategy for me, and I try to never put myself in a position where I would need to sell stocks to access funds in a hurry.

“One of the very nice things about investing in the stock market is that you learn about all different aspects of the economy. It’s your window into a very large world.” Ron Chernow

Start small

Start with an amount of money that you are willing to lose. A small amount is better than nothing. My first investments were in $500 increments.

Open a self-directed account.

This type of account gives you access to a wider range of products. Investing accounts with banks restrict your investments to specific products. Independent brokers charge for their services. They are often paid based on their trades, so their motivation isn’t entirely about making you money. They often trade in funds, which have hidden fees.

Transaction fees

Every trade you make will cost you money, usually a flat fee of somewhere between $5-$10.

Make a plan

Each investment adviser will pitch their own strategy.

The Buy and Hold strategy is simple to understand. The idea is to purchase value stocks and hold them for a long time.

Some investors use a Growth strategy. They look at trends such as earnings growth from one year to the next. The focus isn’t on current earnings, but the earnings trend. If earnings consistently grow from year to year, the value of the company increases, and presumably, the value of the stock will as well. This strategy is based on the expectation that the stock value will increase over time, you will sell it to capture the gain.

Dividend investors look for stocks that have a consistent dividend payout record over a long period. The concept is this solid record of dividend payout supports the likelihood of dividend payments in the future.

My investing strategy combines several techniques.

I focus on purchasing quality dividend-paying stocks and plan to hold the stocks for a long time.

There are several pieces to the statement I just made. Let’s break it down.

Acquire value stocks.

These are stocks in solid, well-known businesses in industries that have stood the test of time. These companies are probably not considered ‘hot’ or the ‘latest thing’. They are relatively low risk because they are already established in their market and their products are proven and reliable. They are also usually quite large companies that can weather changes in world markets.

The pandemic has identified weaknesses in many industries, playing havoc with their stock price. There were some clear winners. Online shopping services saw a sharp increase in demand, as did delivery companies.

Have a hard look at the company you are considering. How was the business affected by the pandemic? Were they nimble and able to pivot to new supply chains or new distribution lines? Did they simply close their doors for three months, with little or no changes to their business model?

Were they one of the businesses that did well during the pandemic? How does their industry look going forward?

Stocks that Pay Dividends.

Dividends are a companies way of paying you back for investing in their stock. The companies that I consider have a long track record of consistent dividend payments. They haven’t reduced or suspended their dividends and they may have recently increased payouts. These stocks might not have the highest dividend rates, but they are consistent.

Hold them for a long time.

There is a life cycle for every business. It is rare to find a company today that was alive 40 or 50 years ago. Wagon wheel manufacturers are no longer as needed as they once were.

“Our favorite holding period is forever.” Warren Buffett

That said, a company can adapt and change their business as things change in the world. An example will be how well car companies adapt to increasing demand for electric cars.

This long term hold strategy requires you to keep an eye on changing times and consider if your company has the ability to weather changes in the demand for their products in the market.

Invest in what you know.

If I don’t understand what the business does, I either do more research until I figure it out, or I don’t invest.

I understand laundry.

One of my better investments has been in a Canadian company called K-Bro Linen. (note, this is not a recommendation.)They provide laundry services for hospitals, hotels, and restaurants. When I was searching for solid dividend-paying stocks and saw this one, I realized it was a good fit for me. I understood the business and I could see the demand for laundry services was unlikely to disappear.

Covid did cause a dip in their restaurant and hotel business, causing the share price to drop, but I remain confident in the company and am not selling at this point in time.

You might be more comfortable choosing bank stocks, restaurants, or tool suppliers. Whatever it is, be sure they are solid, have a record of dividend payments and you understand the business.

Buy and walk away

It’s good to watch your stocks, but don’t check them every single day. The value will go up and down with daily market fluctuations. A good rule of thumb is to check them once a week and keep an eye on dividend payments.

Know when to sell

This is one question that most investment advisors can’t answer. They are full of advice about the best time to buy, but rarely do they have a plan for when to sell a stock.

Many people sell into a falling market. A world event such as a pandemic occurs, everyone runs around saying ‘the sky is falling’ and people panic sell. They do it out of fear, not because they are sure the business has lost it’s value.

I use a technique called the Trailing Stop.

The trailing stop is when your stock price drops 80% below it’s highest market value since you purchased it. You can use 75% or some other number, I set mine at 80%. When the price of your stock drops below that number, wait a day to see if it changes and then sell.

The beauty of this technique is it takes the emotion out of the decision.

I temper the Trailing Stop technique with some hard analysis during market drops caused by unexpected world events, as they aren’t the value of the business changing, they are more market driven.

Often those market drops test my resolve. My stock falls well below my trailing stop but I know the business is still solid. It’s the market reacting to events and people selling that is driving everything down.

There’s an old saying “A rising tide lifts all ships.” That works in reverse as well. When there’s a drop in one sector of the market, tech stocks, for example, other sectors may see a drop, even when the reason for the drop has nothing to do with that sector.

Remember a few things about market drops.

If you sell a value stock during a market drop, you’re locking in the loss, making it a reality for you. If you hold it, the market will likely recover and you will be back in the black. Either way, your decision.

Investing in the market is a gamble, remember? You are taking a calculated risk.

It’s a good time to buy. When the price of valuable dividend paying stocks drops, it might be a good time to pick up some bargains.

My strategy may not be the most exciting plan, but it has served me well over the years.

This article is not investment advice. It is up to each individual to honor their own risk tolerance, do their own research, and make their own informed decisions.

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