Are you looking to make money in the stock market or trying to figure out how to make money with stocks, bonds or mutual funds? Some rules are easy to learn and simple to integrate into anyone’s trading or investing strategy.
One of the most popular investors in the stock market today, Warren Buffett has taken a long-standing approach of the stock market game being the long game; focusing on retirement and not necessarily making $1000 a day with stocks. But for those who want to invest in stocks, you can learn a thing or two from others who have taken Buffett’s approach and tailored it to both long-term and short-term investing.
Like Warren Buffett, many investors begin their stock market lives and investment journeys before even becoming a teenager. Quite possibly one of the most universal mantra’s of the American dream is becoming financially independent.
Throughout the course of history, many investors learn about the potential and the risks involved. Take millennial investors for instance. Many of these “kids” came up in a world where the stock market news wasn’t too bright. In fact, having lived through or born into the stock market crash during the early 2000’s, many of these investors have been indirectly trained to be more cautious when it comes to investing. Seeing their parents and grandparents struggle to keep their stock market holdings producing money during that tumultuous time was a first-hand example of “learning the hard way” even though these millennials probably weren’t even old enough to invest in the stock market themselves.
But in today’s stock market, many investors are starting to find that there are plenty of opportunities even when some stocks go down while other stock market futures are going up.
Confidence in the stock market is great but as many successful investors have come to learn, being overconfident and placing “sure thing” bets on the market all too frequently end up becoming just that; bets. All too often investment ideas that are thought to be sure winners are regrettably big losers.
Whether it’s day trading during the stock market hours between 9:30 AM EDT and 4PM EDT or taking out a long term trade that you plan to hold well through things like stock market holidays and months of ups and downs, investigation in your investments is key. You need to do your diligence and even perform a small stress test to determine if your investment thesis has a higher percentage chance of producing the gains you want or if the stock market news that is currently floating across the media is just triggering a short term pop in a stock. Don’t get too hyped up about a trade until you determine the viability of it for the long or short term depending on your investment goal.
In The Stock Market, Mistakes Cost Money
Just like all things related to investing in the stock market, making a mistake can cost you money; and a lot of it if you don’t adhere to our first rule above. Bad opinions from overconfident TV personalities or a “bad tip” from someone you think to be “a pro” could end up costing you more than just a few dollars.
Understand the reality of the risk that a particular investment has. If, for instance, you take a stake in a company that has traditionally delivered profits on earning reports for 16 quarters but you see the media reporting negatively on the industry, it may be a sign to take defensive measures instead of going all in on that same stock. Things like options, ETF’s or even bonds are clear examples of taking a defensive angle on an otherwise bullish case for an investment.
If you feel that investing is a new thing to you, then you may want to start out by paper trading. In other words, paper trading allows you to test your investment thesis without risking real money. Though winning trades won’t produce real money for you to go to lunch with, losing trades won’t cost you money. This allows new investors to hone their skills and experienced investors to test new theories without risking valuable investment capital.
Don’t Be A Sheep
As the National Bureau of Economic Research notes on the Korean financial crisis, “The herd appears to have been running in the wrong direction. … Investors would have made more money if they had bought stocks that had recently tanked and sold those that were on the up-tick.”
In October of 2008 — at the height of the financial crisis — Warren Buffett said, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”
The simple rule of thumb is “When they’re yelling, they’re selling & when they’re crying, they’re buying,” is usually true. This saying basically says that when the “talking heads” on the news are very bullish about particular investments in the stock market, they’re probably selling stock while “the heard” is buying that same stock. On the other hand, when these same “talking heads” are bearish or complaining about a stock’s price falling, they may in fact be buying that same stock while “the heard” is dumping shares in fear of losing their entire investment.
We saw this happen during the financial crisis of 2008-2009 when most of the average investors in the stock market were selling, people like Warren Buffett were taking out 10-year call options on the S&P 500. Those options became more valuable than simply investing in a “safe bond” at the time and now Buffett’s sitting on a stockpile worth billions more than what he had initially paid back in 2008.