1-It’s Not About How Often You Are Right
Most people imagine that you need to be right at least 50% of the time to make money. How could you be profitable if you are wrong more often than you are right? You’re probably not very good at analysing stocks if you can’t even guess correctly half the time.
That’s definitely wrong. It doesn’t matter if you are right 90% of the time if you are not rewarded enough monetarily. You could be right 1 time out of 100 and become a millionaire.
You should not worry about making an incorrect decision. Nobody can predict the market movement with exactitude, not even Warren Buffet. You should learn to accept that you will be wrong, and capitalize when you are right.
2-Investors Choose How Much A Stock Is Worth
It doesn’t matter how expensive you think a stock should be. What matters is that other people think the same way you do. There’s a reason why a company’s value is going down even though everything seems to be going fine.
If you want to understand why the stock price is dropping, put yourself in the shoes of all the investors selling their shares. There might be something other people are seeing that you aren’t aware of.
Is it simply because the overall economy started tanking, which created fear in the market, which led to investors dumping theirs shares?
Is it because there was a small negative event that caused an overreaction from investors?
Is it because a new board member was appointed, which investors think is not qualified enough to fulfill his duties?
To understand the pricing of a company’s share, you will need to acknowledge that shareholders decide what price a stock is worth.
3-You Shouldn’t Take Investment Recommendations From Small Talk
It could happen at some point that the subject of the stock market arises during some small talk with your mecanician, hairdresser, or someone at the gym. Most people are tempted to give company recommendations to impress whoever they are talking to, even though they may not be qualified.
If you are simply discussing the quality of certain companies, it is understandable that the person you are talking to will tell you which companies they like, and for what reasons. There’s no problem with that.
The problem arises when they start giving you suggestions of stocks to buy on the short term.
For example, their uncle told them that the CEO of “X” company is going to get fired next week. The uncle knows this information because their best friend’s wife told them.
Chances are, the information is not reliable enough to act upon. You should tread carefully when dealing with advice, especially from people you don’t know too well.
4-Don’t Buy Stocks With Money You Can’t Afford To Lose
Although this one might seem obvious, some people think that because an investment is considered “safe”, for example an ETF composed of blue chips, they can invest tons of money without huge potential repercussions.
An ETF is a safer investment when compared to very volatile companies, such as companies releasing their IPO (Initial Public Offering), which is when a company becomes public and releases shares available to purchase in the stock exchange.
You should never invest in the stock market with the impression that you can’t lose the bigger portion of your holdings’ value. This doesn’t mean you shouldn’t try your best to protect your money, but there’s no way to guarantee that you won’t wake up one morning to the biggest stock market crash in history.