Regularly, clients/friends email me if they should buy a stock… (ex: GME)
My first answer is always, (always always) no.
But of course, it can’t be that simple.
Once I say no, they take a step back and think why not!
Before that, they usually haven’t even considered the possibility that it’s a bad investment.
They saw/learned something new, got excited, and immediately wanted to invest. Never once did they look at this investment from the “other” side. They didn’t see the potential problems and pitfalls.
Meme stock investing and timing the market are extremely difficulty. Because even if you catch a stock going in the right direction, you still have to make a second decision, to actually make money. There is a buy AND a sell!
But let’s go back to the conversation with most clients/friends.
You need to know that after a good back and forth about the pros/cons, and if they are still interested in that specific stock, my answer always changes to yes.
Yes, you can carve out 1-5% of your investable assets to invest in specific things…..stocks, bonds, metals, art, bitcoin,,,etc. This allows any investor to get into the game, feed their desire, knowing that if they are wrong it won’t blow up their financial life!
If you are debating on investing in a specific stock, read below to prepare yourself properly!
Gain extensive knowledge on how the company makes money.
What kind of service or product do they offer? What do they manufacture? How is it selling? Where do they sell? Think of this as a first date. You probably wouldn’t go on a date with somebody if you had no idea who they were. If you do, you’re asking for trouble. Stock information is very easy to find. Read, read, read!
The internet provides more than enough information. Go to the company website and read about them. Look for industry blogs and search through message boards like reddit. to see what consumers are saying about the company too. Then, go to a friend or family member and educate them on your potential investment. If you can answer all of their questions, you know enough.
Do not incorporate your emotions
Investors who let their heads, not their emotions, drive their investing decisions find more success. In fact, over-trading triggered by emotions is one of the most common ways investors hurt their own portfolio returns.
All investors are sometimes tempted to change their relationship statuses with their stocks. But making irrational decisions due to emotions can lead to the classic: buying high and selling low.
Here’s where recording your progress helps.
Write down what makes every stock in your portfolio worthy of a commitment and, while your head is clear, the circumstances that would justify selling.
Pick companies, not ticker symbols
Don’t let stock picking become an abstract concept. Remember: Buying a share of a company’s stock makes you a part owner of that business.
You’ll come across an overwhelming amount of information as you screen potential business partners. You want to know how this company operates, its place in the overall industry, its competitors, its long-term prospects and whether it brings something new to the portfolio of businesses you already own.
Plan ahead for panicky times
Checking in on your stocks once per quarter is plenty. But it’s hard not to keep a constant eye on the scoreboard. This can lead to overreacting to short-term events, focusing on share price instead of company value, and feeling like you need to do something when no action is warranted.
When one of your stocks experiences a sharp price movement, find out what triggered the event. Is your stock the victim of collateral damage from the market responding to an unrelated event? Has something changed in the underlying business of the company? Is it something that meaningfully affects your long-term outlook?
Have a Plan!
Overall, there isn’t a person in the world that is able to pick the correct stock every time. If there was, we’d all just give our money to them and tell them to take it away. One of the best approaches to have a successful portfolio is having an end goal in mind. What is your 5, 10, and 20-year plan?
Once you have those goals set, you can better create a portfolio that can take you to those goals, whether it be risky or conservative. By knowing what risk you’re willing to take, you can purchase stocks that you believe in and not let those pesky emotions determine whether you panic sell any time your stocks take a little dip.
Implementing these strategies can help any investor find success in the stock market.
