If you ask any sports buff or Las Vegas card shark how they do what they’re best at, the first thing they’ll tell you is you must learn the rules. I’m here to tell you that investing is no different. With the current fluctuations and panics happening every day, having a strict set of guidelines to follow is more important than ever. Here’s my top ten rules for successful investing.
Feel free to take the whole lot, or just pick and choose. Regardless you should have a set page with all your rules listed, and follow them each trade. Maybe this list will give you some ideas for your own.
1. Trade on Data, not on your gut.
Let’s face it. Our gut feelings are awesome. It’s how we try out new things, ask out that cute guy or girl across the bar, and even try what may become your new favorite exotic cafe.
Know where it’s a terrible idea? With your finances.
Stocks and finances are data driven. Data doesn’t lie, and data doesn’t guess. You should set aside some time a month to just sit down, and research investments that have piqued your interest. When it comes to investments, trust in your gathered data. As to how to use that data…
2. Establish a strategy, and stick to it.
If you don’t have a strategy, then you’re gambling on your gut feeling. We’ve just established that was a huge problem, so how do we fix it? By using the gathered data to build a roadmap to our success. Having a strategy is like stacking the deck in your favor, and knowing how to play the hands that you draw. Build a set routine you use every time you execute a trade, and don't break it mid-trade. Follow it through, and make notes of what worked, and didn't work.
Will you lose every so often? Sure, it happens to every single investor on the planet. Refining your strategy and noting the results will mitigate those losses and quantify your success rate.
3. Listen to your peers. Chances are they’re onto something.
Everybody who talks with me knows that I hate going along with the herd. I find the idea of buying a stock or investment just because so many people think it will go up is financial suicide. Now watch me contradict myself by saying that if you hear a lot of people talking up a company, it's worth bending your ear. Talk is free, after all.
There is a principle in stock markets that use the purchases and activities of the consumer to influence stock market movement. If your friend is super excited about a new tech product, or you happen to overhear at lunch about a clothing company's new line; then it doesn't hurt to investigate further.
That's not to say you should fly by the seat of someone else's pants. Do your due diligence and research before making any choices to invest.
4. Remove emotion from the equation.
Do not panic. Stick to your strategy. If you lose, take notes and learn from it.
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Fine, let's dive deeper. You should always have a safety net in place when you trade, no matter the market. This will keep you from panicking and losing money on a move you normally would have made out like a bandit with. Plenty of people will see a short price drop as a catastrophe, and break their strategy, selling out of a investment that goes on to turn into a big winner.
The first thing I do is set up a stop loss price. This hard line sets the expectation that I am willing to lose a certain amount, and that amount only. It saves my pants if a position decides to turn on me. I also consider it my last line of defense, and never have a stop loss set below 15-20% of a investment's current price, or else I risk being kicked out of the trade on a temporary drop. I personally don't like using them as an actionable item, but rather being told when a investment reaches that point through some form of an automatic alert. Then I can make the decision of what to do with the investments.
5. If it makes money, it’s fair game.
I have seen so many people leave money on the table because they don't agree with a company's views, or a product goes against their ideals. Case and point, the new rise of Marijuana stocks. Cryptocurrencies. China stocks. Real Estate. All of them are fair game.
If you see a good opportunity to make money with something, then you should seize it. It's not a deep personal message when investing. It's a way to make money. Don't treat your investments like a character statement or it may land you in the poorhouse.
6. Judge a stock by its own merit, not by its peers.
I've heard all the advice, "Buy into sectors. A sector’s health is the company's health. Oh, the Medical sector is down, I'll buy Finance instead."
Bunch of bull if you ask me, and not the kind investors like. There's some merit to using a sector to measure the health of a market, but it's not gospel. Case made, I made a gain of nearly 300% on a stock in the Agriculture sector during a near sector wide downtrend.
Remember that not all companies are the same. More often than not, large changes are made by the industry, not by the sector.
7. Have a consistent schedule/don’t let your Finances rule your life.
When it comes to the stock market, there's a lot to be said when it comes to having a schedule. If you're a day trader, then this really doesn't apply to you, but for buy and hold strategies, you need to at least be checking in on your investments twice a week.
Figure out a couple of days where you can spend an hour or two, thumb through the news, and get everything in order. Then go live your life.
8. Don’t go at it alone.
Even in my own trades I always look through the writings and analysis of my peers. Using a newsletter like the offering here is a perfect way to keep your eyes on the pulse of the market. It gives you an opportunity to see portfolio picks that you otherwise wouldn't have even been aware of, and learn new tactics and strategies from experienced investors.
With my analysis, I'm looking to find long term gains, great strategies and picks, and hopefully a few lottery ticket winners in the mix. I've already had family and friends make explosive profits, and steady gains to otherwise stagnant portfolios just from a few conversations with them. Worst case scenario you at least get to socialize a bit.
9. If it’s in the news, You’re three days late to the party.
How many times have I heard someone buy a stock after a promising news article. How many times have I heard that stock dropping after taking their hard-earned money and leaving them in the pits.
The story is the same nearly every time. Average Joe buys a stock after hearing a great news article without doing any other research. Either he makes a couple bucks, or it falls and poor Joe is out of his hard-earned cash. Never trade based on the news you hear, especially those from the large channels. Sure, you might make a buck or two, but you'll lose far more often than you'll win.
10. Have a toolbox handy
Every trader, from beginner to expert should have a tool box in their trading arsenal. Tools, strategies, and data are the cornerstone of your success in the world of investing. While there are literally thousands of separate tools in this world, I’m going to narrow it down to a few to keep in your starting arsenal:
- Your Broker
For obvious reasons, your broker of choice is going to be the first and main tool in your box. They’re going to be where you buy and sell your stocks, so of course they’re going to be the first and most important tool in your toolbox. Be sure to inquire about their services and any analysis tools they offer and shop around when you are looking to open your first account. Some brokers specialize in a certain type of investments, and it’s important to know where their strengths are.
- Portfolio Management Tool
Look, trust me on this. Your broker is your first point of contact when it comes to setting up a portfolio, but their software is built to be one size fits all. As you start trading more heavily, you’ll realize you rely on certain metrics far more often than others. Having a tool that can track those specific metrics such as a spreadsheet you update yourself or a third-party software that can automatically track your investments outside of your broker is something that you can’t pass up on your journey to become a seasoned trader.
- StockTwits.com
Social media is a powerful tool in today’s world. Look at how Facebook brings people together, how LinkedIn connects professionals, and Twitter lets you see snippets from all your favorite trendsetters. Of course, there must be one for investors. StockTwits.com is a website built around how the investing community thinks about a stock. With by the minute updates and a handy sector heatmap to tell the most talked about stocks, it’s a good way to gauge the volatility and liquidity of the stock.
-Steemit
This should be obvious. Same points as above, but more in tune with crypto investing.
There you have it. My Ten Rules have become many successful investors guidelines. I'm interested to see what everyone in the community has come up with. Leave a note in the comments with your thoughts on the best rules for your investment style.
-Derek @FinanceRebellion