Jumping in head-first? Watch for the sharks
Investing in stocks is an excellent way to grow wealth. And with the advent of commission-free trading platforms like Robinhood or Wealthsimple, the retail traders are more present than ever. Most brokers have followed the path of Robinhood and have started to offer free equity trading.
Maybe you have seen videos on Instagram about traders turning pennies into millions, maybe you have learned of the Reddit GameStop saga that has been happening. Maybe you just like the stock? Maybe your friend has bought into Dogecoin, and now he’s trying to get you to buy some. Most of the time, by the time you are learning about new hot stock or the next big shitcoin, it is already too late. Yes, you missed out, like Ignored, my friend who’s always asking if it’s too late.
Either way, there are some basics you must know before you jump in, totally clueless. There are sharks in the pool, and they won’t hesitate to bleed a little baby fish like yourself.
Your are your #1 enemy
You are your main enemy to your success in the stock market and the crypto game. It’s not market makers, shorts, whales, or other traders; they only use you against yourself.
Why and how you are asking? Because you’re a person. You have emotions. You’re stupid and sometimes irrational, you are often emotional. Money is on the line; you know the thing we all trade for? Better shelter, better food, whatever next big thing you saw on T.V., or whatever new product they are trying to shove down your throat.
Money is fundamentally tied to emotions, so when your money starts to get messed with and you start to see red in your portfolio, you get stupid. Think of all the silly shit you’ve done and said on an emotional high or low. You may have drunkenly told someone you loved them, kicked someone’s ass, or bought something stupid.
Now apply this to your investment account. How are you going to treat hundreds or thousands of investment money if you’re emotional? When a stock you own drops 60% and your money disappears what do you do? You have a choice. Emotion will only make the choice harder to make. You will probably want to smash that sell button. You would be wrong. It is hard to grasp, but if you feel like you want to sell, it is probably time to buy more.
It is easy to be willing to buy a stock when you see big green candles and the numbers going up, but once the stock or coin hits a downturn, you will find it much harder to press that buy button. Everyone is a genius in a bull market.
I don’t really have a tip here because emotions are very human and it’s something you learn to deal with. There is no magical key to not being emotional when money is involved. Besides shutting your phone off and going for a walk. But just know that it is immensely important, more than any other thing, to keep emotions in check in regards to investing.
The fear of missing out
You watch a stock for weeks, thinking about buying it. One morning, boom, it jumps 300% in a few days, maybe even in a single day. People at work are talking about the hot stock that’s printing them massive tendies. You start to think that maybe you missed the boat — you dragged your feet and are sitting out riding the rocket to the moon — or did you?
Maybe it’ll go up another 300% if you get in ASAP! Yeah, that’s a great idea. You’re not even greedy, you just want it to go up a little bit so you can feel like you were part of the moon mission, and that’s not hard to do, right? Surely if it went up so quickly, it’ll keep going up at least until you sell.
Wrong. This is a terrible idea. Hype is dangerous.
Dont be the bagholder
This is why people are still bag holding GameStop at $450 per share. This is why a large portion of bagholders exist in the first place; they’re still holding onto their $18 AMCs they bought a few months ago no wanting to take the loss.
If you find yourself experiencing FOMO and just can’t resist, buy yourself a small portion. Don’t go crazy. Don’t “invest” anything more than you’re willing to lose. Start small, learn about dollar-cost averaging. Take some time to learn about the project you want to invest in, and wait for a downturn or a better entry.
FOMO is hell of a drug and a dangerous feeling, so be aware of it.
Fear, Uncertainty and Doubt
The opposite of FOMO: Fear, Uncertainty, Doubt. This can be caused by your family questioning what the hell you bought, news stories, internet shitposts, or people you thought were your friends. They are making you anxious about your stock or coin because you’re worried the price will crash and you will be left bag holding. Oh, bad news hit, every media is trying to convince you that bitcoin is going to zero. You watch your thousands of dollars of gain disappear in a few days (or maybe hours) and what do you do?
You’re $10,000 profit is down to $7,000, $6,000 and $5,000… OMG how much worse can it get?
I could lose all my profit! You panic sell for $2000 and realize an $8000 loss. Now you kick yourself in the ass for not getting out at the top. You were greedy, you feel like shit. You’re the worst trader ever.
But at least you wont be holding it until it goes to zero like the news says !
Then the next day the stock goes up, and up and up, $3000, $4000, $6000… and now you get a side of FOMO to go with your main-course FUD.
If only you held…but maybe it’s not too late to jump back in? It’s not too late right? It’s not too late?
No Regrets! No “what ifs”! You don’t have a time machine
There are few things worse than seeing an “investment” work out better than you expected but do not sell at the top. Selling too early, or too late. You’re always haunted by the “what if I just did this…” A stock triples, you don’t sell, and then it’s back to where you bought it at. You could’ve raked in so much money but you held too long and raked in absolutely nothing.
My tip here is to take profits as you wish. You can probably tell that I’m a big fan of taking half-measures — selling half, buying half — because you’re doing something, and doing something feels good. If a stock goes up 20% and you want to sell, sell half. Realize some profits and let the rest ride. If it goes up, even more, sell half of those, and so on. This isn’t a rule, just an idea. You feel good taking profits but leaving some on the table does wonders for the “what if” thoughts that might haunt you.
If you made so much profits that you feel the need to tell everyone… it’s probably time to sell.
The same is true for buying. Buy half of what you want and see how it plays out. If the stock or coin goes down, buy more. This keeps you safe from tossing in a ton of money at a high price but makes you feel good for getting some cash in the game. Again, learn about dollar-cost averaging.
Stocks aren’t just the only thing to consider. You can also invest in commodities, exchange-traded funds (ETFs), and real estate investment trusts (REITs), or even cryptocurrency. And don’t just stick to your own home base. Think beyond it and go global. This way, you’ll spread your risk around, which can lead to bigger rewards.
Still, don’t fall into the trap of going too far. Make sure you keep yourself to a portfolio that’s manageable. There’s no sense in investing in bazillion different vehicles when you really don’t have the time or resources to keep up. Try to limit yourself to about 20 to 30 different investments, or even less.
Investing can and should be fun. It can be educational, informative, and rewarding. By taking a disciplined approach and using diversification, buy-and-hold, and dollar-cost averaging strategies, you may find investing rewarding even in the worst of times. Be aware of your emotions, FOMO and FUD.