By Younas Chaudhary
I have been in the high-risk energy business for over four decades. I have failed a lot throughout my life, though I worked consistently hard, and always tried to work smarter and watch my costs. Since the beginning of my business career, I have taken calculated risks when drilling new wells, buying wells and real-estate. However, I did not invest in the stock market until five years ago because I felt that I would rather drill a well or buy wells instead of investing in stocks. Over the past five years, my investments in the stock market have taught me a few valuable lessons and tips that I want to share with you:
1. Use self-managed investment accounts: It’s good to open a self-managed investment account/s at any self-managed brokage house of your choice. Study their investment options, and use their online tools to compare stocks in various industries. I’ve felt that it is prudent to buy blue-chip stocks that pay good dividends. I am not a fan of broker-managed investment accounts. As an investor, you should do your own homework and research before investing in a stock or stock fund. I feel broker- managed accounts sometimes follow their corporate strategies that earn them the most money and benefits.
For example, when I began investing in the stock market, I retained two brokers. I divided my total stock investments into three equal parts, giving one part each to two brokers and I put the third into a self-managed investment account. At the end of the first year, based on returns, I beat the two broker managed accounts with my own self-managed account. The broker accounts lost me money while my self-managed account earned me good returns. This led me to do my own research and I started investing time in understanding the market. I learned that some brokerage houses provide “paper trading” features. Paper trading is simulated trading that allows you to trade with fake money and practice trading and investments in the market. Basically, it is the same as if you were trading with real money, except you can practice trading without financial losses. Paper trading is a good way to understand of how things work before investing your own money.
2. Know what you want from the market: Most investors do not know what they are looking for from the market. Based on your current life goals and financial liabilities, you should decide on your investing strategy.
You should stick to your investment strategy even if the market declines tomorrow, over the next month, the next quarter, or if it takes some time to get back to its previous high. Most investors face losses when they do not have any strategy in mind and invest everything into highly volatile stocks or cryptocurrency.
3. Do not put all your eggs in one basket: Diversification is important when investing in the stock market. You need to invest money into different sectors to avoid losing everything if one sector declines in value. Recently, tech stocks fell significantly. If you had invested heavily in the tech sector, your portfolio would have taken a hit. I prefer investing in the “S&P 500 Index” since it provides the balance that I want in my portfolio, it pays dividends, and is a a less risky bet than parking all your funds into just one sector.
4. You Only Live Once (YOLO) doesn’t work: Young investors sometimes favor cryptocurrency or meme stocks attempting to make big profits in a short time. Some people take out several personal loans and carry credit card debts at high interest rates just to day trade in the stock market or crypto markets. Most people lose the money by investing in such a way. With the development of robo traders, it is really difficult for an individual to successfully and consistently make money in day trading. By the time an individual investor gets any news, the news is already old, and the market has already reacted to it. Do not do any day trading. You should buy stocks with long term goals in mind and, depending on your age, keep them for at least six months or more.