I wish I had read something like this before I started investing in stocks. I have to say that three years ago, I had no idea how to buy stocks. Obviously, I learned a lot about how to buy stocks and lose money from that.
Don't do research before buying stocks. I joined a discount brokerage and started buying stocks right away. I didn't know what to look for, so I just picked names I liked and bought a few shares of each here and there.
I have to say that I thought I was doing pretty good. I mean, some of the stocks I chose did okay, but most of them didn't go anywhere quickly. So, skip the research if you want to fail at buying stocks.
Don't think about the trading fees. If you don't think about trading fees, it's easy to learn how to buy stocks the wrong way. I have to admit that when I joined the discount brokerage, I was really excited about their $4 trades. The math was what I forgot to figure out.
When I bought the stocks, I put about $10 into each one. When I paid $4 for a $10 piece of stock, that meant I was losing 40% right away. When I decided to sell the stock, I had to pay another $15 just to sell it. You can see where I'm going with this, it can go very wrong.
Don't Diversify: Buying a single stock and nothing else is a surefire way to buy stocks the wrong way. Invest all of your savings in one company. I mean, a lot of people do it, especially at their workplaces. What's in your 401K at work?
Putting all of your eggs in one basket is like getting on a roller coaster without any guardrails. It would be easy for you to lose everything.
Buy high and sell low: The market is volatile, so if you want to fail, do what everyone else does. I'll admit that it is very tempting to buy a stock that keeps going up and up and up and... up again.
This makes people want to buy it even more, which drives up the price by making more people want to buy it. Isn't this great?
It can be, but if the stock is overpriced, you are learning the wrong way to buy stocks with this purchase.
The wrong way to buy stocks is to sell them as soon as the price goes down. Even if the business is strong. If you follow the crowd, you are likely to go in the wrong direction.
Hold on to a stock that is going down in value to try to "break even." I bought a popular stock for $63 a share, but it went down to the $40 range not long after.
The research I did showed that the company wasn't doing so well, but I still wanted to get my money back. I mean, it will definitely go back up, right?
After a few weeks, it was somewhere around $30. I should have sold it when I could have for $40. Well, I'm going to wait until it goes back up to around $40 before I sell it.
Now, it's worth less than $20 per share. Keeping a stock whose price and company are both going down is a sure way to learn the wrong way to buy stocks.
Avoid Learning The Right Ways: If you want to learn how to buy stocks the wrong way through the school of hard knocks, don't learn the right ways.
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