One of the biggest struggles for an early investor is to hold their investment through some pain. It’s not fun to see the paper value of your portfolio go down day after day for a prolonged period. After a while, it can become difficult to have faith in your investments. However, it is during times like this where the big investment returns are made.
In this post, I’ll go over how you can build up conviction in your investments. That way you can hold onto your investments during a tough time and maybe even add more to your investments.
Disclaimer: None of what I’m talking about should be considered as financial advice. It is for entertainment and educational purpose only.
What Is Conviction
You have probably heard of the term “high conviction” toss around. A company that someone has a high conviction in is one that they believe will do extremely well in the future. As a result, the stock price would go up to reflect that success.
Look Around You
Knowing what is going on around the world is important when it comes to investing. On paper, some companies might seem like the best investment ever. But that doesn’t matter if what the company does is no longer relevant. When you’re aware of what is going on in the world, it gives you a better macro picture of new trends that are happening. This helps you identify whether a company you’re thinking of investing in is on the right side of change.
Check What People Are Saying
Checking what people are saying about the product(s) of a company is a great way to know how well a company is doing. After all, people tend to leave reviews or feedbacks for a really bad or good experience. Another important point to consider is that people talk about things they love so if people love the product(s) then it is free advertisement. A company that doesn’t need to advertise to sell their products indicate that the company is doing an exceptional job.
Identify the Company’s Impact
What kind of impact will the company have on the world? Will it change the way how we operate? Is the company part of an industry that is already existing? Understanding where a company stand will help you identify its potential.
Follow the News Around the Company
Knowing what is going on with a company you’re invested in is one of the best ways to build high conviction. Once in a while, the market will give you buying opportunities. Unless you’ve been following the company closely you might miss the opportunity.
Take for example the price drops 10% in one day, how do you know if it’s a buying opportunity or not? It depends on what is happening with the company. If the business has been getting better, but the price drops then you’re getting a deal. On the other hand, if the business is getting worst and price drop you’re not getting a deal. It might even be a consideration to sell. When you’re up-to-date with the company, you’ll be able to easily identify buying opportunities.
Focus Less on the Price
When it comes to investing there are two sides to consider for a company. There is the business side and the equity side. The business side is the goods and services the company provides, the people they employ, and the management’s decisions. On the equity side, you have the stock that lets you own a piece of a company. While the business side has some influence on the equity side, much of the price is driven by a mixture of emotion, supply, and demand.
When you understand there are two sides to a company to look at when investing, you’ll be able to remain unshaken when prices are falling. When the business side is improving, but the price keeps dropping it is a good opportunity to invest more. At the end of the day, a solid business isn’t going to go away suddenly. So, you can build up conviction by knowing the chance of your investment just disappearing is very low — there is always some risk in investing after all.
Focus on the Narrative
Every company has a story or narrative. Some are less exciting than others depending on what stage the company is at. While price can fluctuate on a daily basis, the narrative (fundamentals) of a company doesn’t. The narrative should be constantly getting better over time.
As long as the narrative of a company is going in the right direction, the short-term price movement doesn’t matter all that much. Over the long term, the price follows the narrative of a company. In the short term, the price and the narrative can feel completely disjoint.
At the end of the day, investing is a journey. There will be ups and downs. Stock doesn’t always go up. When stock prices go down, that is time to look into building up your highest conviction investments.
I hope this post was helpful to you. If you found this post helpful, share it with others so they can benefit too.
If you’re new to investing and need a guideline to help you start your investment journey you can check out my post on setting yourself up for financial success. I also have a post about beginner mistakes to avoid in the stock market.
To get in touch, follow me on Twitter, leave a comment, or send me an email at steven@brightdevelopers.com.