Allow me to tell you why most investors fail despite investing in the right companies.
Let us take two people: Tom and Mike
Both use the Conscious Investor software to find 20 companies that pass at least one SMaRT and invest $100,000 in each.
In other words, they both invest in the same 20 companies that they believe will give them 15%-20% returns in 5-10 years.
What they do next determines their fate as an investor.
Over the next two years, Tom sells a stock every time he makes 100% profit from it.
He then reinvests all the money he makes from each sale in companies whose prices have gone down. He does this with the expectation to make even more profit “when prices go back up”.
By the end of the 10 years, Tom has sold all the good companies in his portfolio which gave him his initial good returns.
Now, he is left with a portfolio full of mediocre companies which in turn, provide mediocre results.
On the other hand, Mike does the opposite.
If, after three years, a business fails to continuously increase its earnings, he sells it and frees up his capital.
He then invests this money in companies whose earnings grow year on year, buying the shares at a reasonable price.
Over the next 10 years, he slowly weeds out all the poorly performing companies in his portfolio and reinvests all his money into businesses whose EPS continue to march upwards.
By the end of the decade, he has built a portfolio of Wealth Winners that are giving him 15% to 20% returns per annum.
What have you learnt from this story?
That you should not uproot the flowers and water the weeds.
If a stock fails to continuously grow its earnings, sell it and either buy stocks in or increase your existing holdings of Wealth Winners that are showing continuous growth.
Keep doing this for the next 10 years and you will slowly build a portfolio which will give you 15% to 20% returns per year.
