Investing is considered as a search of the Holy Grail – the entity that would generate enormous performance with its secret of success. This is not to say that there is a specific set of rules that the investor must abide by; however, there are fundamental concepts that can serve as a roadmap for those wishing to achieve successful investments.
One of the fundamental principles of investing is asset allocation (or diversification). Diversification can be defined as spreading investments across various classes of investment groups or asset categories as well as across different industry sectors and locations in order to reduce risk and increase returns. It may also play the role of diversifying the risk by making sure that investors are not heavily invested in one particular stock.
Another significant goal states that investors should remain committed and demonstrate patience. Markets are highly dynamic in nature and even a minor shift in the market can be experienced in the near future. Strategic investing means not making hasty decisions as a result of movements in the market and instead relying on investing in the market over a long period to gain a high return on investment.
I also noted that it is equally important to be educated and conduct research on potential investments. Knowledge of individual firms, the economy, economic trends, and market conditions is invaluable in deciding where investment dollars should be allocated and what opportunities are ripe for the picking.
Risk management is another important step in achieving successful investment. However, it should be noted that the higher the potential returns that an investor is getting, the higher the level of risk that is involved; thus, investors must determine their risk tolerance and re-evaluate their investment strategy. There are methods of managing risk involving diversification, asset allocation, and periodical rebalancing of the portfolio.
Finally, top dollar considers the need for continuous education and adjustments to take into account the dynamic nature of investing. Moods swing, business moods vary and new investment opportunities arise and fade. Being aware of the issues, having influential people as an advisor and willingness to change your tactics according to the situation are the important principles on which investing depends.
So in brief while their might be no tried and tested formula for success is investment, one can seek to achieve the desired outcome by following some basic principles of investing like the diversification, the long term perspective, research and knowledge building activities, risk assessment and risk management as well as being willing to learn from failures and improve on acquired skills. Common sense is probably a good part of the Holy Grail, for there are certain fundamental rules that all investors should follow.