Investing and trading can be a challenging and risky game, especially for those new to the field. Many people have learned valuable lessons the hard way, but thankfully, some have shared their experiences and advice on an online forum to benefit others. So here are some of today’s most valuable investing and trading lessons.
1. Index Funds Over Managed Portfolios
Managed portfolios tend to underperform the market, mainly when they are the manager and plan to invest solely in 100% index funds going forward.
2. ETFs Over Individual Stock Picks: Strategy for Greater Diversification
According to one savvy investor, they’ve stopped playing the risky game of “picking” individual stocks and have found success in exchange-traded funds (ETFs). They found that this strategy has been more successful, providing greater diversification in their portfolio.
Rather than relying on individual stock picks, they can invest in various companies and industries through ETFs.
3. Profit-Taking Strategy: Why Blindly Following Investment Advice Can be a Mistake
Investors should not always rely on advice or social media platforms to make investment decisions and should avoid blindly following the “diamond hands” mentality.
Instead, investors should have a clear profit-taking strategy and be willing to take profits when the opportunity arises rather than holding onto a losing investment for too long.
4. Above-Average Gains vs. Strategic Approach
One shared that chasing above-average gains is not intelligent, as it often leads to below-average gains in the long run. They further suggested that a more disciplined and strategic investment approach may yield better results.
5. Market Trends and Fallacies: Reality of Asset Movement
Several investors highlighted the misconception that the market only goes up or down when it can remain stagnant for extended periods. One suggested that the common belief that an asset can’t go any lower and will go up is a fallacy since the asset can stay in place without upward movement.
Finally, they stressed the importance of understanding market trends and patterns and avoiding making assumptions based on incomplete information.
6. Investing in Stocks Is Like a Beauty Contest
Another person remarked that they could be the most competent person in the world and find a great company with high quality, but it would not be helpful. The person compared investing in stocks to a beauty contest, where the focus should be on finding the company the market thinks is most beautiful, not just the one they think is most beautiful.
7. Exiting Positions and Limiting Stock Purchases
A wise investor shared a nugget of advice that buying individual stocks is not intelligent just because they seem like formidable companies and others are discussing them. Instead, they advise limiting these purchases and focusing on learning how to exit positions this year.
8. The Importance of Research and Objectivity
A seasoned investor shared that the most valuable lessons they’ve learned include the understanding that stocks don’t always come back, not falling in love with stocks, doing their research and not blindly following anyone’s advice, and knowing that no one cares more about their money than themselves.
9. From Heartbreak to Happily Ever After. What Investing and Dating Have in Common
Investing can be a lot like dating – it’s all too easy to fall head-over-heels for a stock that seems perfect on paper, only to be left heartbroken when it fails to live up to expectations.
One investor learned this lesson the hard way. That’s why they prioritize doing their research and not blindly following anyone’s advice – after all, no one knows your financial goals and risk tolerance better than you do.
10. Keeping Your Ego in Check When Investing
A final user mentioned that they don’t consider themselves as intelligent or well-informed as the more prominent traders in the market. For example, they were ultimately wrong when they first learned about SPACs and thought they could make a quick profit by getting in early.
They acknowledged that they must keep their ego in check and focus on investing in index funds rather than trying to outsmart the market.