Things I've Learned About Investing

So, I've pretty much have had to learn about investments in the stock market all on my own.  At first it is pretty intimidating.  Why wouldn't it be?  It involves your money and the potential for loosing it!

Here are a few things I have learned over the not-so-many years that I believe are important:

1. Be logical; don't be emotional.  Being emotional is one of the biggest pitfalls that happen to investors. When the economy looks bleak and there seems to be no path to recovery, people bail and sell their investments to get their cash to avoid loosing more money.  It is like some sort of survival instinct.  However, the economy always does recover.  Even when there seems to be no hope, it comes back.  Every time.  Despite politicians in all their stupidity.  Now the real kicker for me is to see this happen over and over again.  People never do learn.  But there is a catch, and I'll cover that in a minute.


2. Be consistent.  You need a plan where you put money into investments on a regular basis.  Like once a month, or every other week.  And you need to stick to the plan no matter what the stock market does.  This will help you from acting on emotions and historically you will fare better in the long run.  I currently employ one variation, but I'll also explain that in a minute.


3. Don't put all your eggs into one basket.  This is the catch I mentioned in #1.  It is very risky to put all your money into a single company's stock.  One problem I have with individual stocks in general is that it seems you must know a lot about that company to choose it.  True, you have great potential to earn a lot if the company's stock does well, but you also have a great potential to loose a lot of money as well.  This is why I would go with funds instead.  It generally protects you from significant drops (and also true it prevents you from reaping major increases) in one company's stock.  They are diverse.  And hence lower risk.  So when the next Enron goes belly-up, you won't be caught loosing everything.  It is better to choose some fund that tracks the total stock market, like an ETF such as VTI.  Or choose a variety of funds that cover different aspects of the market.  I won't go into more detail on that now.


4. ETFs are cheaper than Mutual Funds.  I actually started with mutual funds until I realized that ETFs (Electronic Traded Funds) were cheaper and not based on the skill of some random guy playing with your money (mutual fund manager).  I still have my mutual funds, but when I sell them I probably won't buy more.


5. The market is schizophrenic.  I'm not even sure what that means, but my point is that the market will react drastically whenever something in the news happens that "might" impact the market.  Getting all excited causes the price of stocks to be either undervalued or overvalued.  I'm trying to be consistent (see #2), but I also can't help notice that there are always bad days and good days in the stock market.  Since I usually buy some ETFs on a monthly basis, I just wait for the first "bad" day of the month and buy then, because the overall stock market is probably undervalued in the short-term variations.  There is always a bad day.  Just don't get caught up into trying to figure out on a given bad day if there will be a worse day later that month.  You never know.

Alright, now that I've shared, I'm sure there are things wrong with my strategy and the way I approach things.  That's OK with me.  I'll continue to learn and refine.  If you have a comment, please share!