This are the 6 things I wish I knew BEFORE I started Investing, I had to learn this lessons the hard way and I don’t want you to go through the same. Don’t follow the herd mentality when you are investing and don’t fight the stock if it’s not going the way you planned. You can refer to the infographic below.
1- Fundamentals matter when investing
When buying a stock you have to understand that you are buying a piece of a company, and the main goal of every company is to make money. If the company is not making money, or in the case of growth stocks, the sales are not growing every quarter, then this stock is not worth your money. For every stock that looks great but their revenue or EPS is not growing, there are many other that are and you should be looking at those instead
2- How to read candlestick charts.
Most investors consider Technical analysis and chart reading a foolish thing that doesn’t have a scientific support. What you have to realize is that Chart Reading has to be another tool on your investing toolbox. You can find a great stock with all the bells and whistles but if you buy it on the wrong time, you can end up with a loss for a very long time
I agree that timing the market is near to impossible, but there are MANY tried and true candlestick patterns that keep repeating themselves with the same outcome, if you see a pattern developing then you can plan an entry and exit point and execute the deal when the stock reaches those points.
3- Never buy a falling stock
Buying a falling stock because it looks like a really good deal is the same like catching a falling knife, you will probably get cut and it will get messy. A stock that it share price dropped is not the same as a shoe sale on black Friday, the shoe will still be the same with or without the sale, but the company with a falling share price has changed and the stock market knows it
Don’t throw good money after bad money, keep increasing your positions on stocks that are giving you profits and you will achieve financial freedom
4- Never chase a stock
Investors get really emotional when they see a rapid increase of a stock. The old saying that everything that goes up must go down applies very well to the stock market and every time a stock has a rapid share price growth, it will go through a correction phase where it can drop up to 15% (sometimes more).
A very safe to proceed when buying stocks that are going up is to not buy it if the share price is above 5% of its base, at this point you are already late to the party, just wait for the correction. Avoid checking the ticker every 5 minutes that way you don’t make an impulsive purchase and end up with a loss.
5- Only buy more shares when the price is going up
As mentioned previously, do not add good money to bad money, but also, do not buy more shares if the chart is overextended (over 5% the base), wait until it corrects and buy a small portion, this way your average share price won’t be affected too much.
6- Pennystocks are NOT an investment
Let’s repeat this again, pennystocks are NOT an investment. You will not buy the next Amazon, Google, Walmart, etc. on a pennystocks, pennystocks are cheap for a reason and it’s because most of the team the company is worthless, it’s not making revenue and it’s probably near bankruptcy
Pennystocks are very popular because they are great for trading and if you become a pro at reading charts and patterns, you can become very successful trading them, but as an investment, they are TERRIBLE!