The truth about investing is often hard to come by, so sometimes the simplest advice can be the most helpful. Here are ten investing axioms that remind us that investing doesn’t have to be that complicated.

Buy low, sell high


ALSO READ: Investing Pitfalls Most Beginners Overlook


It doesn’t take a rocket scientist to derive the concept of profit. Although this saying is as cliché as it is easy to understand, we often forget the central yet simple goal of investing in the stock market. Our goal is to end up with more money than we started with. Don’t let the methods overcomplicate the goal, especially at first. Use tools that allow you to keep this essential investing axiom in the forefront of your mind and let it guide your decisions.

Never try to catch a falling knife

Picking a stock’s bottom is a noble yet typically fruitless pursuit. When we see a stock price falling, our emotional response tends to scream BUY BUY BUY (kinda like that N-Sync song). In this case though, it’s typically ill-advised to follow your heart. Instead try taking the lump sum money you would have used to impulse buy at your predicted “bottom” and spread your buying out over time.  You’re much more likely to make money this way, or at least, not bleed out completely from your knife wound.

falling-knife

Ride your winners, cut your losses

*** SPECIAL ALERT -- May 10, 2020 -- Motley Fool Stock Picks On FIRE! ****

The recent Motley Fool stocks picks, even with this COVID crisis, are STILL performing well and beating the SP500! Here are some of their most recent picks and their performance:
  • Shopify (SHOP) – April 2, 2020 pick and it is already up 90%
  • Zoom Video (ZM) – March 19, 2020 pick and it is already up 16%
  • DexCom (DXCM) picked Feb 20, 2020 right before the market crashed and it is still up 17%
  • Tesla (TSLA) picked January 2, 2020 before the crash and it is up 77% compared to the SP500 -12% so it is ahead of the market by 89%
  • HubSpot (HUBS) picked December 5, 2019 and it is up 4%
  • Netflix (NFLX) picked November 21, 2019 and it is up 37%
  • Trade Desk (TTD) picked November 11, 2019 and up 50%
  • Zoom Video originally picked Oct 3 and it is up 87%
  • SolarEdge (SEDG) picked September 19, 2019 and it is up 20%
  • Zoom was also picked October 3, 2019 and it is up 95% since then.
The average stock they've recommended is up a life-changing 346% - more than 4X the return of the S&P 500 ! Now, no one can guarantee that every pick in Stock Advisor will have the same mind-blowing returns as Netflix and Disney. But you sure don't want to risk missing out.

Normally the Fool service is priced at $199 per year but they are currently offering it for just $99/year if you click this link

Hurry! Order now so you will get their next stock pick! Here is the expected schedule of release dates for their stock picks...:

  • June 4 - Tom's New Recommendation
  • June 11 - Tom's New Best Buys Now
  • June 18 - David's New Recommendation
  • June 25 - David New Best Buys Now

CLICK HERE to get The Motley Fool's Stock Picks for just $99 per Year! 

Perhaps the least natural axiom to put into practice, this market truth literally requires you to re-wire your brain. But don’t worry, you won’t need a doctor or electrician, just some good old-fashioned discipline. Logically, letting your profits grow and minimizing your losses makes sense because of simple arithmetic.

screen-shot-2018-07-31-at-2-45-11-pm

But emotionally, because of an instinctive cognitive bias termed ‘Loss Aversion,’ people tend to view losses disproportionately to gains. We would rather avoid a loss than realize a gain of equivalent size. However, if we spent our whole career avoiding losses rather than taking profits, we would never make any money. So cut losses short, and let profits ride!

The trend is your friend

Stocks tend to cycle in trends. If we can identify the direction a stock is going, or, when that direction is changing, we can stand to gain a lot. This central principle of technical analysis trading, has become increasingly popular as technology has inspired better data tracking and more effective analytical tools. On the stock market you can make money off of stocks whether the price is increasing or decreasing, so it doesn’t matter which direction the price is moving as long as you’re right. This is a big if, but regardless, use the trend to your advantage when you can, no matter what it is.

Be greedy when others are fearful and fearful when others are greedy

No list of stock market axioms could be complete without the tried and true words of Warren Buffet. In fact, it’s hard to pick just one of his famous insights! This particular quote is more than just a cute rhetorical device and reveals an essential concept of investing. Most of the time, moving with the herd is dangerous, and the true way to profit is choosing your own path or even going against popular opinion. Again, logically it makes sense, but when money is on the line stick to that logic and don’t let primal emotions takeover.

No one ever lost money taking a profit

Profits are profits no matter how small. Plus, the only way to guarantee you don’t lose money is to actualize those profits. This axiom sheds light on the odd way we treat money when its simply numbers on a screen or a page. If someone stuck out their hand out with a $5 bill in it you would take it right? Absolutely. But, a $5 gain on stock investments often doesn’t warrant selling that stock. Many people warn against selling a stock too early but, if you’ve made money, is it ever really too early?

The best stock to buy is the one you already own

With this axiom, investing mogul Peter Lynch combats the idea that you need to find the newest, trendiest, shiniest stocks to invest in. Hopefully, you’ve built a portfolio based on what you know best, and if what you know best is working than why not continue to drive that success? If you’re properly diversified and buying more of what you own doesn’t endanger having a balanced and well distributed portfolio, then stick with what works! Constantly speculating on new stocks is sure to lead to failure, so don’t succumb to the pressure.

Invest your surplus

Possibly the smartest advice you can take, investing only your surplus funds means never losing money you weren’t already willing or able to lose. As has been well established in this article, the psychology of trading often plays a bigger factor than logic or numbers. When you invest your surplus, you avoid the emotional influence of loss and your brain treats any gains as a “bonus.” So, all in all this tactic protects you from any detrimental amount of risk and is psychologically more rewarding.

Don’t try to time the market

Although we do want to buy low and sell high, it’s very difficult to pick the highest of highs and the lowest of lows. So don’t try to time the market. Instead invest in multiple increments over time, called dollar cost averaging, and take advantage of the daily and monthly movement of stock prices. This ideology decreases the pressure of having perfectly timed entrance and exit strategies and allows for a greater chance of profit over time.

It’s always a bull market (in the long term)

Last but not least remember that in the long term, the stock market grows. If the market wasn’t growing it wouldn’t be worth investing in, and if you spend a lifetime investing you will be able to absorb a few recession cycles. Use longevity to your advantage and never forget the big picture!


INVESTING TIP #27-- HOW TO GET FREE STOCK!

Get Up To $1,000 in Free Stock with Robinhood--the Commission-Free Brokerage!

Open a new account and receive one free stock valued at up to $500! Then, once your account is open, get more free stocks (value from $5 to $500) for each friend, family, person you refer! USE THIS LINK to get started with Robinhood!

LEAVE A REPLY