Avoid Shortcuts
Some investors do not want to put in the necessary effort and look for a shortcut. Everyone wants to gain an edge when investing in stocks. The market can seem (and may be) confusing, and any edge may seem like a good opportunity for a win.
However, many believe that shortcuts are the way to success. These shortcuts often come in the form of advice from a friend or colleague. The power of personal recommendation is convincing, even if the advice comes from someone who may know less about investing than you do.
In the past, this “word of mouth” information was exchanged in the office or over the backyard fence. Now, it lives on social media, email, and a variety of other information technology. What hasn’t changed is the reason most of this helpful advice is ignored. A good rule is: don’t buy “great” stocks.
But doesn’t every investor want to own great stocks? Of course, they do, and so do you, but the “great” stocks we usually refer to are those hinted at by a neighbor or colleague who wants the next company to be Microsoft.
These Stocks Fall Into Three Categories
Christmas tree ornaments: they look shiny on the outside but are hollow and shatter easily at the slightest touch, attracting investors whose sound investment principles are distracted by their sparkle, but ultimately fail because they are not viable businesses. Six months later, no one will remember their names.
Bicycles: what your friend doesn’t realize is that these stocks are tied to an economic cycle, which is about to turn in the opposite direction. They bought the stocks when demand was high, and stock prices shot up quickly. Demand may soon decline, and prices will drop like a punctured tire.
Great, but Late: Your friend is correct about the stock; it is great. Unfortunately, the market has driven prices beyond the point where you can realistically expect to make any profits. It’s the “buy high” part of the equation that leads to losses (buy high and sell low).
Avoid Haste
When investing the dollars you’ve earned through effort, it’s natural to take your time and feel comfortable in your decisions. If you don’t feel that the stock “feels” right, ignore it. There are many opportunities, so you don’t have to jump at the first, second, or twentieth stock you analyze.
If you pass on a “great” stock from your friend, and it turns out to be a spectacular success, congratulate them on their lucky break, but don’t second-guess your decision. For every spectacular success, there are 20 failures. A wise investor once said, “One of the best ways to make money in the market is not to lose it.”
Conclusion
In the end, there is no real secret to stock market success. Successful investing requires recognizing great companies and buying them at prices that provide growth opportunities. So, don’t look for shortcuts and don’t rush your decisions. Do the necessary research and analyze companies carefully before making any investment decision. And remember that investing in stocks requires patience and developing your analytical skills to make smart decisions.
Source: https://www.thebalancemoney.com/the-secret-to-investing-success-in-the-stock-market-3140955
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