Making money from stocks is a big aspiration for many people. But only a small handful of people reach their investment goals. What are these people doing that you don’t do?
I am glad you asked.
There are several things you must do to succeed in the stock market. The few things you need to do are:
1. Spread your investments
This is an important one. You always want to trade more than one stock and invest in multiple sectors, industries and countries.
Why is it so important that you diversify your portfolio?
The purpose of diversifying your portfolio is to limit your risk. If you invest in only one company, you are very dependent on that company. However, if you invest in many companies, it does not really matter if one of those companies go bankrupt. You still hold other positions.
I recommend that you invest in at least 10 different stocks in different sectors.
2. Make an investment plan
I can’t emphasize how important it is to have a stock trading plan. If you don’t have an investment plan, you are almost guaranteed to fail. Why is it so crucial that you have a plan?
Simply because you don’t know how to reach your destination. Your stock trading plan is your route map. It guides you from A to B. It is like having a GPS that tells you what to do in order to get where you want.
When you have a concrete plan you can only get in and out of the market once your rules tell you to. In other words, you avoid acting because of feelings and intuitions. As you probably know emotions like fear and greed are your worst enemies. Having a plan helps you make rational decisions and stay on the right track rather than basing your actions on emotions.
Which points should you write about in your plan?
Hmm… that is a great question. You can include almost anything in your plan. But there are a few things that your investment plan must contain. First of all, you must write out a plan for when to enter and exit the market. Secondly, you must have a specific plan for when to select stocks. And thirdly, you must have a plan for how to manage risk. The last point is the most important aspect of your plan. If you dont know how to manage risk, you are doomed to fail. On the other hand, if you have a risk management plan, it is very likely that you will make money in the stock market or at least not losing all your money.
3. Learn more about the stock market
If you want to master the stock market, study the stock market. It is that simple. There are a lot of great books and courses out there that can teach you everything you need to know about stocks and investing.
There is a lot of great material out there. But there is also a lot of material that promises everything, but delivers nothing. If you want to get started in the stock market, you should begin with “How to make money in stocks: A winning system in good times and bad”. This book is written by William O’Neil who is the founder of Investors’ Business daily. In this popular book he outlines a very simple system that gives you the power to select the most promising stocks. He also gives you advice on when to buy and sell stocks.
Okay, I think that is it. Follow the three rules above and you are almost guaranteed to succeed. Stock trading and investing dosent have to be difficult. You should just know what to do and how to do it.
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