Personal Finance Apprentice

7 Things I Learned From the Stock Market

7 Things I Learned From the Stock Market

I’m not a stock broker, stock analyst, or financial consultant (although I like to think I’m able to give rational financial advise).

But I have been investing in stocks for a while now, so I’d like to give some practical advice to newbies. I think this is helpful because most experts have probably forgotten how it feels. Or they remember, but are now focused on more advance-level discussions such as stock-picking or chart analysis.

So I thought it might be a good thing to share things I’ve learned not to do when investing in stock.

These things are in addition to the things I’ve learned to avoid, which I talked about before. If you haven’t read that yet, please do so (Either now or after you read the rest of this post).

#1 Do not- absolutely, no matter what, do not – buy before 2:50 pm. I’d say 3pm, but some online brokers might be slow. The reason is that you will never be able to guess with accuracy what the low or high for the day will be. And certainly not consistently. So avoid the wild ride altogether and wait for the end of the trading day.

#2 You believe one of two things – your stock is fantastic, and you will be excited to buy more of them when the price falls OR you are pragmatic, and unless the price increases you will not buy any more of that stock. There is no middle ground. You must believe one of those things and act accordingly – despite whatever feelings or doubts you may have. Otherwise your actions will be irrational and not make sense. For long-term investors (i.e. will hold for years), averaging-down is your best bet. For those who trade within days or a few weeks, averaging-up is probably your best bet.

#3 Don’t undervalue liquidity. Liquidity will keep you sane and panic-free. Having cash in your trading account will make you happy. So don’t use up all of it right away (Unless you’re cost-averaging for the long-term). Once all your money is in, you might feel helpless as you cannot react anymore to whatever happens in the market.

#4 Don’t let the market tell you what price you want. Know the price you want.  Just because the stock is rising, doesn’t mean you want or need to buy at that price. And just because it’s falling doesn’t mean you have to sell immediately (unless you’re a day trader – in which case I can’t give advise as I don’t know much about it.). The stock market will still be there tomorrow and the day after. And your stocks price will still rise or fall. In this case, patience isn’t just a virtue, it’s a money-maker.

#5 Don’t buy or sell thinking this might be the closest you’ll get. The price rises and dips. Wait for it to go where you want. If you don’t, there’s a good chance that the perfect price will appear after you complete the transaction.

#6 Don’t buy more than once a day. And in fact, try not to buy more than once a week. Keep your money in your trading account. Wait for the market to confirm your “bet” and let the stock price rise. Or keep letting it fall lower. Let it do what it will do and then act according to your strategy.

#7 Don’t buy or sell in small volumes, if you have the money. If the volume is too small, you end up paying more (percentage-wise) in fees and taxes; making it harder to turn a profit. Try to look for your broker’s explanation of how they charge for each transaction. It’s usually a flat fee or a percentage (whichever is higher).

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This article is part of  a series for newbie stock investors/traders:

photo credit: Jun Acullador via photopin cc

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