So in this story, we will be talking about the first big loss I had in my stock portfolio.
The first loss is the hardest. I literally had to punch and slap myself several times when I saw the stock prices surged up, the day right after I sold my shares. Why did I sell it? I was an idiot, and I was listening to traders and speculators who keep on mentioning about cutting losses. And I was already at a 20% loss. I already had a bigger capital, so the losses were bigger. So, for no reason, the urge to sell was stronger than the practical decision to hold. There were no changes in fundamentals, and the year’s earnings are very high. The urge would have saved me in other situations, but this time, it was a mistake.
So what did losing taught me?
1. Stay put UNLESS you’ve done your research
When you are buying stocks out of speculation, or you see the company’s ticker symbol being mentioned almost everywhere (social media or trading platforms), you only see the positive comments urging you to buy, and when things go rough (the losses come in), you only see the negative comments urging you to sell (Literally a true story).
Now, if you’ve done your research, you won’t even have to monitor the prices of the stock every day. So, before you do any trade, do your research and look at the fundamentals, then at the technicals on whether it is a good time to buy now. But if you are not prepared, better not do anything. Warren Buffet never bought technology stocks in his early years because he never understood how these companies worked, or how they are earning. Be like Buffet. Never invest in anything be it a company or any financial asset that you don’t understand.
If you feel you will regret it if you do not do it now, don’t be. Because the world is full of opportunities, you just got to be ready.
2. You need a strategy
Honestly, I’m not very comfortable about people who say they are an investor, but allocates some of their funds in trading, saying its purpose is for short term income. So what does that really make them? What are they really? I’ve learned that trading is speculating, and I have learned to stay away from speculation. So unless you are being hired by brokers to secretly promote trading so that these brokers can earn their income, I’m not really sure why you have two strategies in place. When a crisis or an opportunity comes in which one of your strategy will you use? Very confusing…
So, anyway, I’ve learned to create a strategy, and stick to that strategy till I make grand children babies. Now having a strategy doesn’t mean you are static. Sometimes, change is also part of the strategy.
3. Never speculate
I learned to never ever speculate. Speculate is a really broad term, and sometimes people think they are investing when in fact, they are merely speculating. In “The Intelligent Investor”, you would see Graham describing speculation whenever people buy stocks without research or understanding.
4. Never use money you are going to use in the short term
If you are planning to start a business, or build a home within 5 years, I think it’s best to stay away from the market. Being invested in the market should mean at least 10-20 years, less than that would be sheer speculation. You will never know when the next crisis will hit. My primary mistake was investing all of my assets in the market, when in fact I had plans of building a business and a home within the next years. It was my mistake.
So, put aside a portion of your income for your investments, but never invest everything. Remember that you even have to have your emergency fund on top of your investment fund, so never start investing unless you’ve built that first, too.
Now, I know that everyone have different beliefs and strategies, but these points apply to me and may not apply to everyone. I respect that. You should be open to listening to what others are saying because it’s worth learning from other’s mistakes but you SHOULD pick which ones you should apply. I hope you enjoyed this post, I am looking forward to your success!