There was a great article by Erik Kobayashi-Solomon on Forbes online today. See the link below:
Those three ways are the following:
- Understand the proper use of passive and active investment allocations
Here, Kobayashi-Solomon explains that it is virtually impossible for fund managers to beat diversified indexes due to “structural constraints and skewed incentives.” Because individual investors aren’t subject to these same limitations, our individual investments are capable of outperforming the market over time. The key here is to make sure you have a compelling reason for holding each and every investment in your portfolio.
2. Understand how to assess the value of a company
The main takeaway here is that in order to be a successful investor, you must learn how to value a company. Don’t make investment decisions based on anecdotes you hear in the media.
3. Understand what risk is and learn to manage it
Kobayashi-Solomon defines risk here as “the inability to meet an economic need or desire due to a shortfall in available funds.” Therefore, if you are investing for retirement, the daily, monthly or even yearly fluctuations in your investments shouldn’t matter. As long as you are following rules 1 and 2, you will be well positioned to come out ahead. The key takeaway here is to define your goals, and in doing so, identify the risks that are specific to those goals.