Invest Like The Best In 2021
Updated: Mar 2
Investing mistakes in 2020 cost us a lot of money.
The best investors? They avoided basic blunders and focused on holding quality stocks throughout the market's turmoil: allowing them to double, triple, or even quadruple their returns.
Here's how you can replicate their results in 2021, as we outline 3 mistakes you should stay away from and 3 ideas you should pursue instead.
Mistake number one...
Despite being one of the oldest rules in investing, it’s easy to forget where you’re actually putting your money if the investments are doing well. Take technology stocks.
Although tech has torn through the market this past year, people are still willing to keep 80+% of their stocks in this sector.
Seemingly fine for now, but risky once the music stops.
“On a scale of 1-10, complacency is at a 9, and fear is at 0…the tech market seems ripe for a correction.” – Baird and Morgan Stanley
In other words, ensure to hold some tech in your portfolio because that’s where the biggest changes are happening in the long term. In the short-run, however, the space left for tech to move forward will likely stagnate, which is why investors should move their money into sectors where there’s still room for near-term growth (i.e. financials/banks).
Will the tech plunge be immediate? No. Gradual? We don’t know.
In any case, stocks trading at these multiples will have to come down at some point. When it does happen, you’ll benefit from avoiding overallocation and instead rotating between what's hot and what's not.
Fantasies of Selling Early
The second mistake we should avoid in 2021 goes like this:
See profit, get excited, close trade…miss out on gains. A fourfold cycle of events that never seems to get old.
“I don’t understand why people are so focused on selling things that work. Say I’ve got a billion dollars of Tesla stock and I decide to sell that. Now I’ve got a billion-dollar problem: what do I do with that money?” – Chamath Palihapitiya, billionaire investor
In other words, selling trades that are doing well has never been a profitable endeavor. Many big players in the market made this mistake: ultimately paying the price when it came to comparing profits against their peers. The only times you should be selling a good investment is when
A) You need the cash to make another (better) investment, or
B) You’re using a high amount of leverage, in which case selling is good because a small change in price would cause a large swing in your investment.
The final mistake?
“When the music is on, we love to dance”
This is investor Bill Gurley’s way of saying that people are quick to accept whatever’s hot at the moment. Think Tesla, Nio, and other tech-based companies in 2020.
Although they’ve been incredible bets in the past year – regardless of when you bought their stock – it’s likely that you’ll be buying at a price that’s too high.
“The real winners aren’t the ones who bought Tesla at 800, but at 80. Same goes for Nio, buying at 40 was a good bet, but the real winners bought at 4.”
In other words, start looking for the more under-the-radar companies as opposed to where the music always is. This is where the 1000% returns arise from, and there are several ways we can get there:
- Patience. Hold your stocks until their attractiveness is gone. If the things that made you invest in the company in the first place are still there, there’s absolutely no reason to sell!
- Use sources like Simply Wall St. to filter your preferences and find the ideal company to hold until that 1000% return arrives.
In other words, your Dividend Payout will come from avoiding 3 simple mistakes and then making some strategic changes to your investing style this year - have a look at where that takes you!
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