It’s interesting. It’s mysterious. It’s alluring.
It’s dangerous. It’s full of unpredictable ups and downs, and still, people invest there and try to earn. It’s the stock market.
So many rookies lost their last pennies and left the place while others made a fortune. Don’t worry, we’ll guide you through all the pit holes to fight back your greatest nightmare of losing your last penny.
A General Discussion
Warren Buffet, one of the legendary figures in the investment market, once suggested the new investors with two witty rules:
- Don’t lose money.
- Don’t forget rule number 1.
A large number of newcomers tend to run after mirages with their speculations and ‘investment genius,’ which they think they can acquire within weeks! Investment isn’t gambling. You don’t need to speculate on the next stock. In fact, no one has ever known when the market will go up or go down.
Then, what do you do?
You do the simple job: you learn, start with most cautious steps, and never get overconfident. After all, you invested to create a lifetime source of income so that you don’t need to work anymore. So you can’t do anything that puts you at risk. There is always a smoother, smarter, and trusted way. Find that way and follow it.
You can start with our tips. Read them carefully and prepare yourself before you jumpstart.
Tips for the Beginners:
1. Understand Your Risk Tolerance
This is the first thing you need to determine whenever you decide to invest in this market.
In general terms, risk tolerance is the measurement of your power, telling how much risk you can sustain mentally and economically. Can you invest $300 to win $1000?
Or invest $950 to win $1000? If your investment goes beyond your risk tolerance level, you suffer from anxiety, which, in turn, provokes you to make wrong decisions one after another, resulting in a complete collapse.
So many times, we have seen people get biased by others investing hundreds of thousands of dollars and slowly starting to follow them.
What they don’t realize is that those investing there in large amounts have a higher level of risk tolerance which they don’t have. Ultimately, they cannot withstand the nerve-tugging deals and end up selling all the stocks prematurely.
2. Cut Losses Early
At the first sign of a falling trend, you need to be ready to ‘rip it off in one motion’ and not wait for things to look up.
The simple calculation is if the fall continues, you can let out your breath of relief and get ready to buy them back at a much lower price when they just start to rise. And if the fall turns out to be short-lived, you can avail your chance anytime.
3. Let Gains Run
Lots of companies are there whose share has a steady uprising trend. Some American companies that started with less than a dollar are now enjoying $10, $20, or even more than $50.
Most experienced investors hold on to companies that have a continuous rise, even if the progress line sometimes gets nearly flattened.
You don’t need to determine an upper limit for your gain and let it go as far as it reaches.
If you do really sense a red light and seriously think of selling too soon, do yourself a little favor before you do it and re-assess the underlying company. Observe their rising market share, revenue, and customer levels. If these factors appear just fair, you’d better hold the shares in the long term.
A blog post about Eric Fry on StocksReviewed clarifies what you need to know about it.
4. Don’t Average Down
Sometimes the investors make a mistake by putting more cash into falling shares even though the price drops by 40%, 50%, or sometimes more than 80%, thinking that any time, it may go up, and the average profit would be higher.
But this is wrong.
The first thing is that this makes their average price per share lower. Remember the two rules by Warren Buffet? If you invest more in declining stocks, you’re losing a portion of your money. Generally, there is a reason for the falling shares to fall, and they may fall even more.
What’s more, there is always a chance that they cannot recover their loss. Now you guess the result.
5. Average Up
Keeping pace with reality, the opposite decision of investing more on up-trending shares is always right. The more you put your money into it, the more you gain. There is nothing to lose from a winning company.
Here’s a bit more about it.
6. Paper Trade
This is the best way for a newcomer to learn the basics.
You don’t invest, and you don’t lose. You only trade with papers. Simply keep track of the stocks you had planned to buy and start trading with imaginary money.
Try each of your information, idea, power of calculation and intuition, and see how they work and to what extent you should rely on each of them. Now, as you’ve found out your real friends, you can start.
7. Single Biggest Investor Risk— Confirmation Bias
Have you ever wondered which news and information you pay attention to most of the time? It’s always the ones that confirm your idea, belief, and choices. And, plainly, you leave out those that don’t comply with what you think is right. This is called confirmation bias.
Unfortunately, so many investment leaders have found ‘confirmation bias’ the most devastating attitude and advise us to concentrate equally on the information that supports our choices and that which refutes our thinking.
That’s why we’ve highlighted it to be the ‘single biggest investor risk.’ You need to keep an eye on every trend of the market and have the mind to change your decision based on ‘all the information’ and not the ones you think are right.
8. Don’t Trust Free Stocks
Free stocks, especially in the world of penny stocks, are just the products of some dishonest business persons, which they use to draw some greedy and foolish investors to their worthless companies.
They are, therefore, dangerous and should never be trusted.
9. Don’t Trust Friends Unless They are Doing Better Than You
The number of advisers is always more than learners. During your trading, you’ll meet so many people who’d keep advising you voluntarily.
What you need to do is to try to know if they are practically more successful than you. If they are, you should consider their pieces of advice. Otherwise, you should just give them an enduring friendly smile and forget everything.
10. Buy What You Know
It’s a very realistic and generalized formula. You always buy shares of your known companies and avoid new ones, at least, until you get to know their status, plans, and overall market trends.
11. Keep Doing What Works. Stop Doing What Doesn’t.
Once you’re on the stream of seeing some profits, you certainly have some knowledge, tactics, and calculations that are working in your favor. Keep them working and utilize the tactics more and more. On the other hand, leave the strategies that didn’t work, even if you ‘think’ some days they will help.
12. Be Wary of Media
The simple view is that the news doesn’t talk about what will happen, not about what is happening but merely what has happened. You can use this news to reckon what is coming next.
For example, the media focused a lot on the dot com market when they boomed during the 2000s, just before it started heading to a great fall. The same happened with pot penny stocks. These reports helped experienced investors to foresee the decline.
13. Don’t Buy What Everyone Else is Buying
You need to understand what an overvalued market is before you understand our issue. When a lot of investors fall for a particular stock, it gets overvalued, and the next inevitable scene is a free fall. All you need to do is to tell the difference between a regular trend of investment or a mob-mentality buying.
Final Words
We may not be able to grow out of our tender tendency of frequently getting emotion-driven. Yet we can reduce the risks by our experience and learning. The more we’ll get self-conscious, gradually the better results will be there. For some more information and comprehensive tips, you can click here.
Happy investing!
