3 Ideas to Make Investing Simpler

Investing can be complicated and to some, an abstract concept, but there are some ways to view it to make it easier to understand. We do not need to have a PhD in Statistics or Economics in order to do well in investing, we just need to have the right ideas and mindset towards it (a good attitude is a plus as well). I'm going to share some of the ideas I've had that may make the concept and the process of investing sound simpler.

       

(Image source: commons.wikimedia.org)

Good investments should be obvious

Good companies should be fairly apparent when looking at their financial statements in relation to their share price. Good companies should have at least a few of the good characteristics (low P/E ratio, stable earnings, ample cash flow, etc.) and if you need to spend time reading in between the lines just to justify why the company is good, odds are that the company may be struggling to make it into the "good investment" category. Of course, we still have to do our homework to ensure that the company checks out and isn't hiding anything (as far as we can tell) in the notes to the financial statements.

Daily prices aren't as important as you may think

While the price of the share may fluctuate from day to day, your stake of the company doesn't, so even if the share price drops by half tomorrow, you still have the same share in the company as you have today. If you're investing for the long run, the day to day stock prices don't affect you unless the company changes track or something untoward happens towards it. Let's take an analogy of buying a house. Volumes are down and it looks like prices may fall soon, but will you stop enjoying your house just because its value has dropped? Same for shares, nothing changes except for its price tag, so feel free to hang around.

Shares are just a small piece of a company

Same goes for bonds, they are just a small piece of a company's debt. Multiply the price that you are willing to pay for the shares by the number of shares outstanding for the company and you have your own valuation of the company. Keep thinking about things this way and you will be able to tune out the market noise just like how a person buying a business wouldn't look at the day-to-day trading price of the company but instead at the fundamentals of the company and the price that they are willing to pay for it, which are things that shouldn't fluctuate greatly on a regular basis

Summary

I hope these 3 ideas are able to make the idea of investing simpler. By taking a macro view of the company and closing ourselves off from the market noise, investing can be made much simpler and more passive.

If you have enjoyed this post and would like to receive notifications on new posts, you can subscribe to my blog via email or like our Facebook page