What have you learned, that you wish you knew, when you started investing in stocks?
The below is my subjective personal experience and opinion. I do not think my experience is necessarily right or valuable for everyone.
- Buying the broad indexes (e.g. MSCI World) is typically a good idea after a huge sell-off. It takes balls, and you might not hit the bottom, but it is often better to buy the dip than buy into a strong top formation.
- Many, not all!, losses can be averted, if you just forget about the investment, and let it sit for a few years.
- don’t buy individual stocks. Buy well diversified funds, passive or actively managed.
- Broad diversification is good. Don’t own stocks from just one single country or one sector.
- Gold miner stocks are to some extent a hedge, but this is a very dangerous investment. Those who bought gold exposure in august 2011 (when gold was expensive), are still in a huge loss today on that position.
- “safe” stocks like Pepsico and Hershey Co are not necessarily safe if they have high PE ratios and everyone have rushed to buy “safe” stocks in a low interest environment, where people see it as a low-risk alternative to getting 1% interest in their bank account.
- it is difficult to beat the market. When you manage to do it, it is often a result of luck, and not sheer analytical skill or technical trading talent.
- Avoid day trading.
A few rules I try to live by when investing:
- Don’t invest in penny stocks! This is a mistake many people make when first starting. the general thought is “If this company goes from $0.50 to $1, I’ve doubled my money!” But they fail to think, that the price could just as easily go down to $0.25, losing 50% of your investment. Penny stocks are cheap for a reason, avoid them at all costs.
- Before you buy a stock, know what the company does! Far too many people buy a stock simply because Motley fool, Jim Kramer, etc. said it was good. (Or someone on the internet). It’s not bad to use these sources for ideas on stocks to research, but always do your own due diligence. (DD) It’s your money, no one elses, so if you lose it, you only have yourself to blame.
- Investing is a long term game, don’t think you’ve some how cracked the code and try to become a day trader. The idea is to grow slowly, but consistently over time. Sure, plenty of people make money day trading, but many more people have lost tons of money trying to do it.
- Don’t buy on margin! This is a rule I’ve always lived by, you don’t want to loan money to buy stocks, only invest with what you can afford. If you buy on margin, and the stock you buy takes a dive, you may want to ride it out. However, if a margin call comes in, you’ll be forced to sell your position at a loss to cover the margin call (and likely need to deposit more money, or sell other positions to cover it). I don’t like the idea that someone else can tell me when to sell, so I avoid it.
- Don’t own too many stocks. I know plenty of people who own 20-30 different companies at one time. It’s impossible to keep up with all of these effectively. I try to limit myself to owning no more than 10 positions at once (and even then, I think you’re better off closer to 5).
- Investing takes time. If you don’t have the time to devote to keeping up with your positions and what these companies are doing. You’re probably better off buying ETF’s or index funds. You can still be somewhat targeted buying an ETF for a specific sector, or using broad funds like SPY or VOO.