TRUTH BEHIND WHY YOU ARE NOT MAKING ANY MONEY IN THE STOCK MARKET
UNDERSTAND GROWTH INVESTORS TRADE DIFFERENTLY THAN VALUE INVESTORS
There is a very popular saying in the stock market “Don’t try to catch a falling knife”. This means never buy a stock that is falling! As you can imagine the stock may continue to fall and can possibly bankrupt you! I once bought a stock that I didn’t sell as it was coming down. It went all the way down and then became worthless! The commission to sell the stock costs more than what the stock was worth! I had to call my broker to remove security from showing up in my portfolio. I couldn’t sell the stock and it was a bitter reminder every time I logged in and saw my investment had turned into $.000012!
In 1999 there were many dot com companies that never made it back. When the stock market was crashing, if you continued buying into investment that was falling you may have dumped good money after bad and lost it all! NASDAQ ETF QQQ was $120 in early 2000 then it tanked for 2 years, all the way down to around $20 in 2002. Reminder this is an index not a random stock! It did not rise over $120 until 2016! If you held on to that ETF in 1999 and continued buying on its way down, at some point you may have run out of money. On top of that you didn’t breakeven for up to 17 years! That means for 17 years you made 0% on your investment! Now could that money be invested elsewhere for better returns?
In 1999 and later in 2008 some of my stock investment became worthless and I lost money. I learned I will never hold on to a stock that is falling, or just teeter tottering again! I will only invest in stocks that are rising day after day and will sell quickly & get out if the stock is not moving up or turns down. Why would I ever invest in a security that is or has fallen so much when I can get out and wait for the market to start going up again (growth investing)?
Then I learned that’s exactly what Warren Buffet and other millionaires do! Warren Buffet looks at these stocks as a good bargain when its all the way down, he buys them when they have fallen and everyone else is selling. He says he likes to buy cheap and below what they are worth (value investing). One of his famous quotes “Price is what you pay. Value is what you get”!
Can you see why someone could be selling while others are buying?
UNDERSTAND FUNDAMENTAL ANALYSIS ENTRY POINTS ARE DIFFERENT THAN TECHNICAL ANALYSIS ENTRY POINT
Fundamental analyst will tell you the best way to invest in a company is to figure out how the company is doing (by its performance) by studying its cash flow, earnings, expenses, assets and liabilities; all of which can be found in its 10K. If the stock value is right, then buy and hold! Then as the company grows, so will your shares. Fundamental investors are not concern about short term trends up or down.
Technical analyst focuses on the stock chart, pattern, trend lines, moving averages, support and resistance and many other indicators all gives you clue into when to buy and sell stocks. Technical analysts spend little time on figuring out who is running the company, what their annual report or 10k states.
These two methods could trigger different buy/sell points contradicting each other on when to enter and exit a trade. I will show you how to find great companies, run the numbers, do the fundamental analysis then apply technical analysis to them. We will learn both and then incorporate them into one system.
Point here is to understand, why one investor could be buying while other is selling.
UNDERSTAND INVESTING CONCEPT IS DIFFERENT THAN TRADING CONCEPT
There is a difference between short-term trading and long-term investing. When you invest in a company, you are hoping to reap the profits as that company builds wealth over a longer period. You are hoping the company will be worth a lot more in the future through ups and downs. The theory is that as company grows so will its overall value and in turn your investment in it. This requires some forecasting and usually a buy and hold strategy, as it will take some time for the company to grow.
Trading involves short term buying and selling of a security. You are hoping to take advantage of the short-term gain. Your focus is on trending stocks and prefer to get in & out of positions relatively quickly if the trend changes. You are hoping to beat “buy and hold” strategy which is usually implemented with longer term investing. You are less concerned of the long-term prognosis of the company.
You can see how a great short-term trading opportunity maybe different than long-term investment opportunity.
Again a trader can be selling while investor could be buying.
UNDERSTAND WHEN TO PREVENT LOSS VS. BUY MORE AS IT COMES DOWN!
Should you buy on dips or place a stop loss to avoid bigger loss? These two methods are difficult to predict even for the most seasoned investors. While one analyst buys every time there is a dip, because they see a dip as a buying opportunity to buy a stock for less. Another analyst is afraid that it could be on its way down and wants to prevent further loss and gets out. If the market comes up after the dip the first analyst will have bragging right for buying at a lower price. However, if the market dip turns into bear market and the market falls, the second analyst will argue that getting out early was the right decision. Who is right?
Can you see different buy/sell signals here?
Above realization alone will save you years of wasted learning, prevent confusion and lots of money down the drain. It took me 10 years to figure this out on my own, going around and around and going nowhere!
Understand that when you sell your stock, someone is buying it from you. When you buy your stock, someone is selling it to you. This means there are investors & traders who are thinking completely contrary to you. Are they misguided, or are you? Someone has to be wrong……right?
If you follow someone’s advice or follow a certain principal or create a trading system, without understanding what you are doing, you will be all over the place without much success! Understanding above concepts alone will cut out 10 years.
The point I’m trying to make is as a novice investor you will be very confused when you don’t have a clear investing plan.
You will waste years and years of learning if you are jumping back and forth between different methods/strategies without having clear plan. You must have a philosophy that you believe in, are adhering to, have back-tested and most of all is giving you results…making you money.
When you are learning to trade or invest in stocks, do not haphazardly buy/sell stocks because your colleagues/friends/TV gurus or someone online is telling you it’s a great buy, understand above concepts and then build on them.
START BY LEARNING REAL CONTENT, UNDERSTAND HOW THINGS WORK FIRST! EVEN THEN YOU WILL HAVE LOSING TRADES, BUT OVERALL YOU WILL HAVE MORE CONSISTENT RESULTS!
First figure out:
- Are you long-term or short-term investor?
- Are you basing your decision on charting?
- Are you reading 10k?
- Are you a value investor?
- Are you a growth investor?
- Are you using technical analysis or fundamental analysis as your trigger entry/exit points?
- Are you in an industry that gives you an edge over other investor?
- THERE ARE 100’S OF OTHER FACTORS TO CONSIDER.
DON’T TRADE HAPHAZARDLY → CREATE A PLAN BASED ON KNOWLEDGE AND CONTENT NOT HOPE AND HYPE → BACK-TEST YOUR PLAN–>GIVE IT SOME TIME AND MONITOR YOUR RESULTS → MODIFY YOUR PLAN IF IT’S NOT PRODUCING RESULTS!
IF YOU ARE LOOKING TO BECOME AN INVESTING PRODIGY AND LOOKING FOR A SYSTEMATIC LEARNING PROCESS THAT BREAKS IT ALL DOWN IN A COMPLETE A-Z STEP-BY-STEP COURSE.
IF MONEY IS TIGHT, I GET IT!
START WITH FREE APPRENTICE COURSE FOR FREE
NO-NONSENSE TRUTH TO HELP YOU BECOME A BETTER TRADER AND AN INVESTOR.