Welcome back everyone! This is Andrew Horowitz, host of The Winning Investor’s Quick and Dirty Tips for Beating the Market, and I'm so glad to have you as my guest today as we discuss ideas and information on becoming a Winning Investor!
Last time, I recommended two books that have stood the test of time and are in the top 5 recommended reading lists of most traders today. In this episode, I thought I'd share with you the Top 4 advice statements of general investment wisdom that you can use, right now, to become a better investor and avoid some of the common pitfalls that snag so many people when they get started in the market.
Let me present these top statements for you to write down and reference quickly.
#1. Never Follow Stock Tips
You don't know where that tip came from! How many times have you opened your email and read "Buy XYZ stock at fifty cents because it's the next big thing and it's going to go to $50 in a year so you need to buy now!" Delete those messages and be skeptical of any particular hot trading or investment tip you get from a friend or from a television commercial. Always do your own research and put the time into learning why a stock is a good buy -- don't just take someone's word for it!
#2. Never Invest or Trade with Money You Can't Afford to Lose
As much as we've been told the stock market is safe long-term, 2008 showed us it can give us some very bumpy rides along the way. Also, some people come into trading and use their rent money to "play" the stock market game. Just like you shouldn't take money you need to live on to Las Vegas, you shouldn't put money at risk in the stock market that would devastate your livelihood if you lost part of it. Take investing very seriously and realize that there are risks involved and that you can't become a millionaire overnight!
#3. Don't Let Emotions Rule Your Decisions
We all get so excited when we're making money and imagine all the things we can do once we cash in our investments. However, greed can make us do some crazy things. It can make us put too much capital at risk and not properly diversify it. It can make us hold on to a stock far longer than we should. It can make us trade too often. But fear can be just as devastating! Fear of missing out will cause us to chase markets too far. It will also cause us to panic and sell a losing position often very close to the absolute lows! Make your decisions using sound information from reliable sources and don't just buy because price is skyrocketing up! Keep a calm head when making your investment decisions and you'll do better than being dragged around by your emotions!
So far, I've been telling you what NOT to do. Let's end this episode on a positive note! This is probably the #1 bit of advice most investors and traders will tell you if you asked them to tell you their best advice... and here it is.
#4. Let Your Winners Run and Cut Your Losers Short
This means that when one of your stocks is rising in value, realize it is probably rising for the reasons you chose it in the first place and often it will keep rising. People are catching on to the good research you did, and the price rise shows you were on the right track. Don't do hours of work and then sell your investment once you have a little profit! Give it "room to run" to increase your profit!
So many times, people do the opposite! They will hold on to stocks that go against them because they just "know" it will come back and make money -- but many times it doesn't. People also don't want to admit they were wrong, but it's not about that -- it's about preserving capital and living to invest another day! If a stock starts to fall, know the point at which you want to sell that stock-- usually when it’s at an 8 percent to 10 percent decline from where you bought it. Don't hold on to losing positions. Think back to how many stocks in 2008 lost over 50%! This one rule alone could have saved people so much money.
Listen back over these statements of trading advice and do your best to follow them!
Keep with us as we discuss even more ways to become a winning investor in our next podcast! If there’s a question you’d really like to ask, just email me at winninginvestor@quickanddirtytips.com or call 206-338-0836. That’s 206-338-0836 and maybe your question will appear on the show. And if you like the show, tell a friend or leave a review on iTunes. . Until next time, this is Andrew Horowitz with The Winning Investor’s Quick and Dirty Tips for Beating the Market wishing you all the best on your quest to investment success.
