10 Tips for Successful Long-Term Investing

While the stock market is riddled with uncertainty, certain tried-and-true principles can help investors boost their chances for long-term success.

Some investors lock in profits by selling their appreciated investments while holding onto underperforming stocks they hope will rebound. But good stocks can climb further, and poor stocks risk zeroing out completely. Below we discuss 10 tips for successful long-term investing that can help you prevent mistakes and hopefully generate some profits.

1. Ride a Winner

Peter Lynch famously spoke about "tenbaggers"—investments that increased tenfold in value. He attributed his success to a small number of these stocks in his portfolio.

But this required the discipline of hanging onto stocks even after they’ve increased by many multiples if he thought there was still significant upside potential. The takeaway: avoid clinging to arbitrary rules, and consider a stock on its own merits.

2. Sell a Loser 

There is no guarantee that a stock will rebound after a protracted decline, and it’s important to be realistic about the prospect of poorly performing investments. And even though acknowledging losing stocks can psychologically signal failure, there is no shame in recognizing mistakes and selling off investments to stem further loss.

In both scenarios, it’s critical to judge companies on their merits, to determine whether a price justifies future potential.

3. Don't Sweat the Small Stuff

Rather than panic over an investment’s short-term movements, it’s better to track its big-picture trajectory. Have confidence in an investment’s larger story, and don’t be swayed by short-term volatility.

Don't overemphasize the few cents difference you might save from using a limit versus market order. Sure, active traders use minute-to-minute fluctuations to lock in gains. But long-term investors succeed based on periods lasting 20 years or more.

4. Don't Chase a Hot Tip

Regardless of the source, never accept a stock tip as valid. Always do your own analysis of a company before investing your hard-earned money.

Tips do sometimes pan out, depending upon the reliability of the source, but long-term success demands deep-dive research.

5. Pick a Strategy and Stick With It

There are many ways to pick stocks, and it’s important to stick with a single philosophy. Vacillating between different approaches effectively makes you a market timer, which is dangerous territory.

Consider how noted investor Warren Buffett stuck to his value-oriented strategy and steered clear of the dotcom boom of the late '90s—consequently avoiding major losses when tech startups crashed.

6. Don't Overemphasize the P/E Ratio

Investors often place great importance on price-earnings ratios, but placing too much emphasis on a single metric is ill-advised. P/E ratios are best used in conjunction with other analytical processes.

Therefore a low P/E ratio doesn't necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued.

7. Focus on the Future and Keep a Long-Term Perspective

Investing requires making informed decisions based on things that have yet to happen. Past data can indicate things to come, but it’s never guaranteed.

In his 1989 book "One Up on Wall Street" Peter Lynch stated: "If I'd bothered to ask myself, 'How can this stock possibly go higher?' I would never have bought Subaru after it already had gone up twentyfold. But I checked the fundamentals, realized that Subaru was still cheap, bought the stock, and made sevenfold after that." It’s important to invest based on future potential versus past performance.

While large short-term profits can often entice market neophytes, long-term investing is essential to greater success. And while short-term active trading can make money, this involves greater risk than buy-and-hold strategies.

8. Be Open-Minded

Many great companies are household names, but many good investments lack brand awareness. Furthermore, thousands of smaller companies have the potential to become the blue-chip names of tomorrow. In fact, small-cap stocks have historically shown similar returns to their large-cap counterparts.

From 2000 to 2023, small-cap stocks in the U.S. returned a compound annual growth rate of 8.59% based on the MSCI World Small Cap Index while the Standard & Poor's 500 Index (S&P 500) returned 9.66%.

This is not to suggest that you should devote your entire portfolio to small-cap stocks. But there are many great companies beyond those in the Dow Jones Industrial Average (DJIA).

9. Resist the Lure of Penny Stocks

Some mistakenly believe there’s less to lose with low-priced stocks. But whether a $5 stock plunges to $0 or a $75 stock does the same, you've lost 100% of your initial investment, so both stocks carry similar downside risk.

In fact, penny stocks are likely riskier than higher-priced stocks because they tend to be less regulated and often see much more volatility.

10. Be Aware of Taxes

Putting taxes above all else can cause investors to make misguided decisions. While tax implications are important, they are secondary to investing and securely growing your money.

While you should strive to minimize tax liability, achieving high returns is the primary goal.

The Bottom Line

Investing in stocks never guarantees profits and can be challenging due to the constant fluctuation of the markets, movements in the economy, policy changes, world events, and more. Even with a lot of research, it can be hard to pick a winner or know when a winner becomes a loser and vice versa. Heeding to the above 10 tips can help make you a better investor and hopefully bring in some profits.