I have spent years investing in the stock market. Starting in my early twenties, when I started my first job at $25k a year, I have not looked back. One thing that you’ve read over and over is that you cannot time the stock market. And that is 100% true! Trust me, I have learned from many failures of trying early on and now over the last 20 years of being successful. But there are many lessons that I had to learn, you will too, but hopefully reading this helps minimize some of those losses.
A lot of what I am going to list out for you today are things I am sure you have read before. I am re-inforcing these reasons because when I was younger I thought I knew what I was doing. Actually I thought I knew everything! Well, you learn by making mistakes and even today, as crazy as everything currently is in the market, I will still make mistakes. The only difference is I have learned to make way fewer which in turn has made me money over the years.
1.) Patience. You have to have patience when investing. I know, I know, the movies always show someone making it big buying and selling. But movies are not real and your money is, so don’t make decisions from watching TV. The stock market, over long periods of time, will go up. Look at every major economic downturn from the great depression to 9/11. It might feel like the end of the world today, but over time it goes up. Companies only get smarter, faster and more innovative year after year and that helps the market turn upwards every time. But note “Time” means months AND years, but it will go back up.
2.) Making Fast Money does not Happen. Put this into perspective for a second. Think about the Lottery. There is always a big news event when someone hits the jackpot. But what they don’t show is how many people spend their money trying to win something that is 1 in over 300 million chances. The stock market is the same thing. You will read about someone making millions of dollars on an investment and think I can do that too! Don’t look at the stock market like a lottery, that’s bad investing. The stock market can make you money, but slowly over time not instantly.
3.) Stay Away from using a Margin Account. I am not a person that likes debt. But when investing, Margin Accounts can look very enticing. Basically you are borrowing money from the broker/bank to buy a stock and it has to be paid back. I have a million-plus in margins and will not use it UNLESS I know I have the money to pay it back the next day. Use Margins only if you want to make a trade quickly without waiting for money transfers. And only use it if you have the money to pay it off immediately. Otherwise, you will be in debt and that is losing money.
4.) Stick with Companies with Large Cash Reserves. Not all investments have to be like this, but you should have several that are solid for when a crisis hits like now. Apple, Google, Amazon, Berkshire are all solid stocks because if/when something happens, they have billions in the bank to keep things moving when a downturn hits. That means they can still innovate and create new products for when the economy does turn around which then creates a huge advantage over their competitors.
5.) Never Buy on Emotion. I still have an issue with this one from time to time because I feel like I am going to miss out on some stock that’s going to hit it big! “They are creating the next big thing”, etc and you want to be a part of it. Well, for the average investors like ourselves, we don’t have the money to gamble on “what if’s” because you have to be able to lose big too. Very rich people will take those risks because they can, meaning taking a loss is not going to make much difference to them. Taking a loss for us could mean much more.
6.) Read. With Apple News+ you can read articles from the Wall Street Journal, Barrons, Yahoo stock news, etc. There are a ton of online publications that feed information daily. The idea is not to act on every piece of information, but you absorb that information and over time figure out the decisions you might want to make when buying stock. For example, I might read about different airlines, buying new places or cutting services and then read about how travel is going up or down and estimates for new planes on the rise. But then Boeing has issues making a plane that can fly and they keep announcing a “fixed it” date, but it keeps passing. Most industries are like this, and the airline industry is one I am very cautious about in general because it can be so finicky. After our last economic downturn when Bush was in office, I started to watch Boeing and after several months I ended up purchasing at $83 a share. The economy was turning, planes were needed, Boeing was making fuel-efficient planes that saved money and on and on. I sold Boeing at $330 a share when they announced a third fixed it” date on the Max 737 airplane. That told me there are some serious issues, especially when you read deeper into articles about mismanagement. Then this current crisis hit and bam….it dropped under $100 at one point. I do not sell much, but I felt they were not solid and thankfully I made the right decision. Read, read, read.
7.) You are not the Smartest Person. What I mean by this is to put your ego aside and read, watch, listen to people smarter than you. That does not mean you have to act on what they say but just like above, you can never be too informed. Warren Buffett is smart. Warren Buffett makes a ton of money. Warren Buffett likes value. Warren Buffett is as boring as a person can get….but I watch, read and listen to what he does because he is one of the smarter people in the room. He is not a jet setter on a large yacht posting pics on Instagram. He is an investor living in Omaha in the same house he purchased in 1958. He is safe, he is boring and anytime he speaks or buys a stock I watch, learn and sometimes follow.
8.) You don’t have to be Rich to Invest. Anyone can invest and make money. In today’s world, investing is so much easier then it was in the ’80s. I use to have to look at a stock price in the newspaper, call someone on the phone, get a quote, make a purchase, wait for confirmation for that buy. But today you can see everything almost in real-time and you can invest a little every month from your phone! I try out a lot of different app/websites and one that can work for anybody is called Folio First. You can give them $100 or more a month and pick one or more stocks to purchase fractional shares. That means instead of paying $1900 for one share of Amazon. You can buy $100 of that $1900 share of Amazon. And then the next month buy another $100 and so on. I started this experiment taking $500 a month from my bank account and splitting that money between several solid stocks month after month. Today it is at $50k! And guess what, I am just going to continue to buy because of overtime it will continue to grow larger.
9.) It is Never a Loss Unless you Sell. The market goes up and down all the time. And your heart rate might go up and down with it! Don’t let that happen. We are in a huge crisis right now and the market tanked. That does not mean I lost money, because I did not sell anything. It’s only a loss or gain when/if you sell. Again, up and down, up and down, you just need to stay calm, use your patience, keep investing and wait for the recovery.
10.) Hold, Don’t Sell. I rarely sell my stocks. Unless like the example above with Boeing, I saw that coming and made the decision. But usually, I don’t sell and I don’t sell for several reasons. When you sell, you pay taxes on the gain. Why pay taxes if you don’t need to have the money. Which brings me to using stocks as your bank account. Using the stock market as a bank account will only lose you money in the long run, as noted in several points above. Use a small or whatever portion of money a month you feel comfortable not needing, and invest it with the idea of using it way down the road. Buy/Sell, like you’ve seen on TV will only kill you in the end. Buy, hold and wait.
One more thing to remember is that when you purchase stocks, and I say stocks as multiple, is that you have to think of them altogether in a portfolio. If you have 10 stocks and currently 7 are positive and 3 are losing, it’s the average of all 10 of those stocks that matter. Every stock you pick is not always a winner on a daily basis, remember stocks go up/down all the time. But when you look at your portfolio of stocks, it is the overall results that matter.
Divorced Dad Does (www.divorce-dad.com)