5 Investing Rules for Making Money in Today’s Stock Market by The Motley Fool


© Reuters. 5 Investing Rules for Making Money in Today’s Stock Market

Did you buy stocks because everyone around you was minting money? And are you upset because you lost all your money buying the stock at such a high price? The rule of thumb in stock investing is to buy the downside and sell the upside. It sounds easy, but it’s hard to follow because emotions take over logic and you can panic sell. But remember, it’s not a realized loss until you sell the stock. Stick to fundamentally strong stocks and sell those that have little or no room for revenue or earnings growth over the next five years.

Five Investing Rules to Make Money Yes, the market is down and tech stocks have crashed. It’s okay to panic, but it’s wrong to make hasty decisions. Here are five investing rules to help you make money in today’s market.

1. Don’t do what everyone else does You’ve seen what happened when you made financial decisions by blindly following others. If you keep doing the same thing, you will keep losing. Think of it this way: if you sell when everyone is selling, will you get a good price for your stock? No. So do the opposite. The current market saw a sell-off as hedge funds unloaded their tech stocks on Dec. 31. Retail investors followed suit, and names like Descartes Systems (:DSG)(NASDAQ:DSGX) and Lightspeed Commerce (TSX:) lost 30% and 45% yr to date, respectively. Stocks are down, even though their earnings are good. It’s time to be greedy and buy the dip.

2. Learn about the company and its finances before buying its stock Whenever you invest in a stock, understand what type of business the company does and what its earnings and cash flow are. Would you lend money to a stranger without knowing their ability to repay you? It’s unlikely. So why give your money to companies without knowing what they will do with it? At Motley Fool Canada, we always talk about the business of the company, not just the stock price.

3. Invest in a business you understand This is a rule I strictly follow. I don’t understand health care. Therefore, you will rarely see me recommend pharmaceutical or hospital actions. Warren Buffett doesn’t understand crypto and technology, so he doesn’t tend to invest in it. Elon Musk understands Twitter (NYSE:) and so he’s invested in it. Billionaires follow this rule, and so do you. When you invest in things you understand, you won’t be attracted to market noise and false rumours.

4. Don’t try to time the market Don’t try to time the market. Don’t make risky intra-day trades or options, where even a few hours’ delay can cost you dearly. Also, don’t wait for the stock to peak or bottom because you don’t know when the decline or rally will end. The market is volatile in the short term as it affects investor sentiment. For example, Descartes stock fell 30% – not because of weak earnings, but because of panic selling in the market. Therefore, never try to time the market. As Buffett says, “If a company does well, the stock eventually follows.”

5. Invest regularly Every investor has lost money in the market at some point. Buffett admits to making tons of mistakes himself. That’s how we learn. So don’t stop investing. A good strategy that you can implement is to invest a certain amount every week or month. This way you are not timing the market. You will take what the market gives you. If you invest in the right stocks like Descartes or Enbridge (TSX:), regular investment can give you good returns, as price volatility would reduce costs.

If you invest regularly, don’t stop now because the market is weak. Boost your investment and buy the falling stocks you understand.

A few last-minute tips Use the five principles above to diversify your portfolio. Understand the title and its fundamentals and set realistic expectations. If the stock exceeds your expectations, it’s time to take some profit.

The post 5 Investing Rules for Making Money in Today’s Stock Market appeared first on The Motley Fool Canada.

Fool contributor Puja Tayal has no position on the stocks mentioned. The Motley Fool recommends Enbridge, Lightspeed Commerce and Twitter.

This article first appeared on The Motley Fool


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