An Introduction to Stock Investing
In this post about An Introduction to Stock Investing, I hope that this information will help you improve your investing skills. As you improve your investing, your results will improve also. These are just some tips and not advice.
1. Thinking it is okay to take a huge loss
The mistake is thinking that because your first investment turned out bad it is okay to take another one as long as it is your first investment.
Sure it is, but it is also a huge mistake to let pride get in the way of profit. The reason is that you are not satisfied with the profit you made in the first investment and may repeat the cycle by selling poor investments and buying again when their prices fall. The longer you wait before buying the stock, the more likely it is to fall.
2. Looking for that “sure thing”
It is looking for stocks that are going to perform the way you think they should. It is looking for stocks that will fall in price and then perform like they have a head start.
This is the exact opposite of what you should be doing. You should be looking for stocks that are going up. If they are, great, if they aren't then you will sell them. If you think you have a sure thing then you are just using that as a bargaining chip to get a better price on the stock.
You should be focusing on selling stocks that are performing well below expectations. A sure thing is usually a sure loser.
3. Selling before you even see the profit
This is by far the biggest angel investing mistake I have seen. They think if they wait just a little longer, the stock will turn around and make them a profit. Wrong!
The stock will probably continue down, but at least you will have an idea of what you are getting into. When it comes to stocks, you are trading on past performance, not future potential. It is easy to wait and wait and wait, but if you are selling to get back to a profit it will never happen.
You need to know what you are getting into before you put a single penny on the table.
4. Selling stocks that you know will fail
It is one thing to sell stocks that you are less than satisfied with the performance, but it is another thing to sell stocks that you know are going to fail. If you sold stocks for a 6% loss and they continued to drop you would be crazy not to sell them.
The key is to not sell stocks that are performing poorly but are still safer than your average put option.
5. Picking profitable stocks early
This is a great example of jumping the gun. It is easy to pick a stock that is about to take off just before it happens but be careful not to jump on all stocks that have high short-term interest rates.
Stocks with short-term interest rates way above 20% are going to make you crazy. Not only are you paying way too much for the privilege of owning a stock that goes poof, but you are being robbed of the chance to cash in at a moment's notice when short-term rates are much lower.
I hate it when I get caught with my pants down.
6. Getting greedy early
Greed will cause you to jump the gun on several opportunities, but don't forget to sell gazelle moments after you scoop. One of the biggest mistakes I see people make is chasing the little winners.
You can be riding high on the third winner, but be sure to get out of the stock when the short-term rate begins to rise because it will be gone.
Don't chase the gazelle because you are sure it is going to make it and then it goes and you have nothing. I get greedy when I am wrong or the chances of making money on the stock are so small, but the chances of making money on the stock get called away are quite high.
Last week I made a post on Facebook about choosing profitable stocks. It got some good responses, and a lot of people who read the post seemed to have some questions they wanted to be answered.
Here are a few of the most commonly asked questions:
Q. What stocks should I buy? What about selling?
A. When you get to the selling part of the question, most people tend to jump to the next question. If you are like me, then you want to know what stocks to buy and which ones to sell, but I will save the selling for another article.
Q. Why do I need to know the answer to the question “What stocks should I buy”?
A. It is my belief that the person who can determine which stocks are good investments and which ones are not, is going to be a successful stock trader. If you think that it takes some skill to determine which stocks are good to buy, then then you will certainly be more successful as a stock trader.
Q. How can I determine which stocks are good investments?
A. It takes some time, but I will share with you some techniques that you can use to help you out.
Once you learn how to analyze stocks and understand some terms, you will definitely have a better grasp of the market and what you should buy, and what you should sell.
Q. How do I learn to analyze stocks?
A. To learn how to analyze stocks you need to get some books and articles and learn how to analyze stocks, but I can tell you that you can find tutorials on the Internet to help you out. I have read a few tutorials that show you how to analyze stocks. I do not know if they are the best tutorials, but they are more than worth the read. I would highly recommend it.
Q. What should I buy?
A. I would say that it would take me between three to five months to get me to be able to analyze the best stocks to buy. I have read that it takes much longer, but I have read that it does not take that long, it may take you three months to get to understand the fundamentals of good investing. The best thing is to read and research so that you can understand what good investing is all about.
I used to blame everybody else when I made mistakes. I got to the point where I thought if I made one more mistake in my portfolio, I would be bankrupt. If I made two more mistakes, I would have nothing.
An Introduction to Stock Investing Mistakes
What I need to do is make a mental note to myself that each time I make a mistake, it is solely on myself.
Mistake #1: Having the wrong mindset
You will make mistakes, the stock market is not perfect. If your first guess is wrong, it could take you out of the market. That is one of the reasons you should not take your portfolio with you when you go on your next trip to the market.
The market can be treacherous and you could lose more than you take with you. So, how can I make that note?
Mistake #2: Making investments at the wrong time
The next time you make a mistake, you will have the same mindset. So you will say, “Well if I make that last mistake, I'll be out of business.” But that could work in your favor. What I have learned is that you need to make investments at the right time.
Mistake #3: Selling when you are down
Every time I make a mistake, I make it again. That is another mistake. If you sell when you are down, you might get out of the market without giving back anything. And that would be a big mistake.
The market can be punishing. It could take all of your money and just give you a small fraction. So you need to remember that you need to set limits on yourself.
You need to know when to be aggressive and when to be defensive. The mistake is not going forward when you are down.
Mistake #4: Selling too soon
Most investors believe that if they are down a point or two on a particular stock, it will turn around. That is not true. We have seen times when a stock falls 10 points and still goes up. So it is not always the case.
Mistake #5: Not giving back what you have earned in the last 6 months
Most investors that exit their positions in stock will not give back the money that they have earned from the stock. It is a sad thing to watch your profits shrink because of your mistake #4. You will lose money that you have earned and the stock will most likely go up.
There are two mistakes that I would have liked to have seen someone do. The first one is choosing the wrong time to buy. The second one is that if you have made a mistake, that you are about to make the same mistake.
The second mistake is buying a stock for $12 but selling it at $20. This one is hard to avoid because you have to set a stop order. I do not recommend this mistake because the risk of losing your profit is just too high.
The second mistake is that if you have made a mistake, it is still a mistake and should not be repeated. So stick to your strategy. Once you have lost 50% of your money on your first trade, you may want to consider investing in an S&P 500 fund. Now that is a post for another day.
There are also several strategies that I like to use in my portfolio. I like to invest in small caps and micro-cap companies.
The best option for anyone that to start building a portfolio in less than 24 hours with no skills or experience is to Join VC Crowd as they will do all the work for you.
This is an Angel Investing club that does all the work for members and then allocates shares every month to members. The amount of shares you get monthly depends on your membership level. You can get started for $100 per month and that will be turned in shares in fantastic startups every month. There are webinars and updates every week.
Now I hope that this information will help you improve your investing skills. As you improve your investing, your results will improve also.
I am just sharing what I have learned with others. I do not want you to lose your money.