With a trade as uncertain as the stock market, it has become even more important to understand all the tried-and-tested methods that can help you succeed in it. After all, it is rare for someone to accidentally stumble upon success in the realm of investments. Luck does not factor in when it comes to the endeavor of investments. It is with consistent practice and a solid premise that you can succeed.

Of course, this is not to dissuade you from the benefits of investing. There is much profit to be had in following countless of stock market cycles. As long as you are willing to put in the hard work and time to understand the patterns, you can stack the deck in your favor easily.

So, are you someone who’s thinking of becoming an investor for a living? If you are, then you’re going to find this article about ways on how to be a successful investor.

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Tip #1: It’s important that you set your long-term goals

One of the first things you need to learn about how to become an investor from scratch is to know your goal. Ask yourself why you want to start investing first. And then, ask yourself how much you’re willing to invest and how long you can go without being in need of that money.

Knowing your purpose and your financial capacity to fulfill said purpose is useful in helping you calculate just how much you can invest. Plus, it will help you figure out your appetite for risks.

Tip #2: Be realistic–understand the possibility of losses

If you want to learn how to be a good investor in stock market, then one thing you have to embrace is the idea of losing money. As we said, the stock market is extremely volatile grounds for increasing and losing your money. When you start investing, you have to be prepared to count your losses too. This includes accepting the fact that stock that has declined will not rebound anymore.

Of course, many will argue that expecting to lose money is a mentality that signals failure. However, it is still important to know when you should be cutting your losses and admit defeat.

Tip #3: Never accept anything as valid–especially in the stock market

Stock market tips abound the internet and the whole stock market community. But the important thing to remember is not to be swept away with these stock tips. It is critical for you to develop your own investment personality, and to stick to your own analyses of the charts.

Sure, there really are some tips that are good leads, but the opposite is often true.

Read more about Growth vs. Value Investing.

Tip #4: Stop worrying over short-term movements

Want to know what to study to become an investor? There are plenty of training modules and materials that can outline investment portfolios and bonds for you. However, one important non-technical skill to learn is how to keep your cool when your investments plummet.

Understand that you should be looking at the bigger picture for a long-term goal. Actually, short-term movements and fluctuations and quite common. Learn to keep your cool when these happen and you’ll be able to see the big-picture trajectory that it is meant to traverse.

Tip #5: Find a strategy that works for you– and be loyal to it

Once you have figured out what your goals are, then it’s time to discover what your investment philosophy is. It is the precept that will dictate most of your investing decisions–the foundation of your investment journey.

After all, indecisiveness is a trait that never landed anyone anywhere in the investment field. So whether you’re handling stocks or learning how to become an investor in a business, it’s important to determine and follow certain strategies that you know you can rely on.

Tip #6: Mind your taxes, but don’t let it run your business

Of course, taxes are a major consideration in investing. You need to figure out tax implications and other relevant uses for it. But the important thing to remember when dealing with this is that it should only take secondary seat in your business. Your concern should be to grow your money securely. Whatever comes after should take the backseat–your taxes including.

Tip #7: Be ready to take risks so don’t get too comfortable

We’ve been asked by clients time and time again how to become an investor with little money. Our answer will always be the same–take risks. One of the biggest mistakes you can make is to start getting too comfortable with your money. Learn that that biggest earnings come from the greatest risks. And while we don’t encourage you to invest in the most volatile bond available, sitting at the edge of your seat can sometimes be good for you.

Check out more on our Global Asset Management South Korea blog.

1. Learn the basics about market cycles to avoid reacting emotionally as they change
2. Prioritize your goals within your own life cycle and decide how much risk you can honestly afford to take financially
3. Establish a long-term investment plan that lays out your goals, your situation and risk tolerance. Stick to it no matter what is happening in the market

Read more about what is global asset management?

MANAGING EMOTIONS THROUGHOUT MARKET CYCLES

Economic cycles can range from two years to over a decade. Stock market cycles lead economic cycles by 6-12 months. Investors who succeed through-out repeated cycles learn to recognize the difference between what they instinctively want to do, and what they should do.

GAM (Global Asset Management) advisors report this is one of the most difficult aspects of their work. When stock prices are high, greed tempts people to buy. When markets are in a downturn and prices are low, fear leads people to want to sell. This flies in the face of common sense. Even a child is familiar with the mantra: buy low and sell high.

The best way to control one’s impulses and make objective decisions is by having a written investment plan and sticking to it. The first step in objectivity is learning about market cycles and appropriate reactions.

MARKET TOP

Markets peak after a period of strong economic growth and low interest rates. At the top, the economy is still growing but the rate of growth is slowing. Usually interest rates are falling to stimulate growth, and unemployment remains low. During this interval, corporate earnings show signs of pressure and the risk of recession rises.

The problem is that stock market gains are a buzz and in this state of elation, people want to buy even as market risk increases. This is a great time to re-balance a portfolio. Asset classes that have risen above their intended allocations should be trimmed back like hedges to their ideal shape. In doing so, the investor locks in profits and raises cash.

THE DOWNTURN

Once the market peaks, it starts to come down. Indicators that the economy is in or nearing recession include rising unemployment, falling corporate profits and downward stock market trends. The Fed will have begun rate cuts. This is the start of the bear market. At first, people will be optimistic that a correction is at hand and the bull market will continue.

Eventually reality sets in along with negative emotions leading to a temptation to sell. This stage of the market cycle requires patience. Investors should review their investment plan and ensure that all holdings contribute to achieving long- and mid-term goals. Do not panic and go to cash.

MARKET BOTTOM

Think of this period as the dark before dawn. Just like the market top, it won’t last forever. Economists define a recession as two consecutive quarters of negative economic growth, based on a country’s GDP (gross domestic product). During this time, expect falling inflation, rising unemployment, and declining corporate profits. Stock prices trend down.

Eventually, there will be a catalyst to turn things around, which is often the Federal Reserve cutting interest rates to inject liquidity into the economy, stimulating spending and leading to growth once again. This can be a depressing time for emotional investors.

But it’s the best time in the market for wise investors who trimmed their hedges at the top of the market. They have cash on hand to buy stocks at a deep discount, providing the best opportunity for long-term growth and wealth creation. This is the time to buy, not cry.

THE REBOUND

The market equivalent of a crocus peeking through the snow, this is the start of a new bull market. Economic indicators include employment upticks, low interest rates and sudden upturns in corporate profits.

To underscore the importance to investors of being fully invested at this point in the cycle, note: the year after a market bottom the S&P increases by an average of 47%. Investors who panicked and went to cash trying to time the bottom (not you, dear reader) should immediately return to their investment plans and buy diversified, good quality stocks.

Again, check your portfolio against the established investment plan and rebalance any asset allocations that are out of whack. Then sit back and relax, knowing the worst is over.

THE ROARING BULL

At this final stage in the overall cycle, the bull market is well established. Economically, statistics show strong growth, falling unemployment and increasing corporate profits. Stock prices are rising. As this cycle progresses and investors grow more confident, greed sets in and they feel invincible.

This is the time to be alert for the temptation to over-weight a portfolio with stocks, especially growth stocks and aggressive small caps. Towards the end of this cycle, market volatility intensifies and quarterly company reporting becomes less predictable, leading to both spikes and drops in stock prices.

Approaching the next market top, once again review one’s holdings against the investment plan and trim the hedges so you’ll be ready for the next fire sale.

Bottom line, understanding where we are in the market cycle and how to react appropriately is a powerful step to building long term wealth. It’s easier said than done. Advisors with Global Asset Management Company Korea report this as one of the most important aspects of their job. Being objective during difficult markets adds value to all advisor-client relationships.

Have an investment plan and stick to it. This is the key discipline in building long term wealth.

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