It has been about 2 years now since I have started my endeavours in the stock market.
Over these years, I had done a lot of experimentation in active investing. I had made some good investments and some terrible ones.
Had I known these tips that I am about to share at the very start of my journey, I would have saved myself thousands of dollars.
Here are the 7 tips that I would give to my past self if I was given the opportunity to travel back in time:
1. The “experts” are not always right
Back when I first started investing, I had a problem of not knowing which stocks to invest in.
I decided to follow the crowd. I began watching the local business network channel and started reading the selections of other personal finance bloggers. If they are confident enough to invest in these stocks and to recommend it to others, why shouldn’t I listen to them?
Needless to say, most of my stock holdings that was acquired through this method was either underperforming or simply too slow.
I have found that many of these so called experts to be very reactive to the stock market. They tend to be one step behind and are quick to alter their perspective in the after effect.
In retrospect, the only reason why it sounded so complex was because I didn’t know better. My knowledge in stocks was just too elementary at the time.
2. Don’t sell too early
Warren Buffet’s number 1 rule is to never lose money.
I can’t tell you how many times I have sold shares at a loss when all I had to do was to wait for a few more weeks and I will profit.
Patience is a very important characteristic to have in the stock market. In most cases, when a stock takes a hit, it will only be a matter of time before it rebounds.
The case where a stock never recovers can often be screened out in the research prior to the purchase.
3. Index funds will outperform most active investors
When I first started investing, I invested in a low MER S&P 500 (US Equity) index fund.
I got a little bored of it as I didn’t have to do much but sit back and watch it appreciate. This was when I decided to start picking some of my own stocks.
Although I gained lots of experience by becoming an active investor, my index fund yielded a return of over 20% in the last year. The stocks that I hand picked barely broke even.
Had I just invested all my money into the S&P 500 index fund from the beginning, my portfolio would be in a much better position.
As for the learning experience that I gained through stock picking, that can be achieved in a play portfolio. I am not entirely sure whether I would take it as seriously as I did with real money though.
4. Mutual funds are a waste of time
My very first investment was in a mutual fund that my bank advisor suggested.
I held this investment for nearly a year and it didn’t even yield 2%.
I have found that mutual funds are very slow and often comes with a high management fee. The cost of managing the portfolio may even amount to more than the return on investment.
An alternative to mutual funds for those interested in passive investing would be a low fee ETF or index fund in the S&P 500.
5. Short list the stock watch-list
On my phone, I have an android app with almost 150 stocks that I track on a daily basis.
Not only is this watch list way too big for me to manage, it is also quite diluted with stocks that I have not done proper research on.
Every time I see a stock that goes on bargain, I get tempted to buy in without knowing much about the company’s fundamentals.
My last piece of advice to my past self would be to keep that list to about 10 stocks and to resist the urge of buying random stocks in the spur of the moment.
What are some stock investing tips that you would give to your past self? Would you have done anything different if you had the chance to go back in time?
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