4 Profit-Boosting Tips for Long-Term Investors in 2012

2011 was a brutal year for long-term investors. The market rocketed up one minute just to be slammed down the next in a cage match that ended the year flat. Despite strong fundamentals and high corporate profits, politics won the title belt for dominating the market.

What actions can investors take in 2012 to lower risk and improve gains? Here are four:

1. Re-balance Your Portfolio Regularly
Provided you have a timely market-beating strategy, rebalancing should ensure you keep the strongest stocks with the highest upside potential. Let me repeat the key to this tip: You must have a market-beating strategy, like the Joseph Piotroski F-Score value investing model, that is timely.

For instance, some investors buy when earnings growth is high and accelerating, and when price strength is better than average. Holding these stocks into cycles of low growth and price underperformance can negate early gains from your strategy, so it pays to rebalance. However, if your stock-picking success is no better than the market, you'll only experience higher transaction costs by re-balancing.

Provided you employ careful stock selection, consider rebalancing every three to six months; remove stocks that no longer meet your buying criteria and replace them with ones that do. In one simple strategy I run, quarterly rebalancing made the difference between losing over 8% and gaining 20% for the year.

2. Get into the Action
Some investors passively hold a basket of stocks and hope for the best. While it is understandable that fear can cause paralysis, it can also harm your net gains. If you believe the market will eventually rebound (and you should if you are long in the market), keep making regular purchases. When the market is compressing valuations, it can be a great time to accumulate strong stocks.

An alternative approach to regular purchases is to aggressively buy every time the market falls 10% or 20%. This can compound the upside fast. If you only buy when everyone is a bull, you will typically purchase at higher valuations and may seriously limit your upside.

3. Get Defensive
Some think that getting defensive means anemic gains. One investment risk management strategy I use targets pipeline MLPs and domestic utility companies which have over 5% dividend yields. This ultra-defensive strategy returned over 22% last year when factoring in dividends.

Another simple strategy - one that picks deep value healthcare stocks with improving earnings estimates - generated over 23% gains last year. If the market makes you queasy, and 2012 looks to be another roller-coaster year, use defensive stock-picking techniques to help you sleep a little sounder at night.

4. Seek True Diversification
This term gets overused, but the practice rarely does. In short, buy investments that the average investor doesn't. What are some ways to diversify in the equity market?

Foreign stocks can often provide the variety you seek. American depositary receipts (ADRs) deliver a little more edge than country funds, and selecting companies from emerging markets can offer up variety that many investors ignore or are afraid of. Exposing your portfolio to a small amount of gold investments, such as 3-5%, can still provide diversity - but I wouldn't expect a large upside given the volatility of this precious metal.

What can we expect this year? I am sure we have not seen the last of the Eurozone woes, and 2012 will likely be another choppy year for long-term investors. But by implementing a few timely tactics and strategies, you just might bear the storm with your face to the wind and some spare change in your pocket.

Kurtis Hemmerling writes about stock investing strategies on the Money Crashers personal finance blog.