No. 1 - I will never buy stocks in businesses that I do not understand. Without proper research, I stand to lose my hard-earned money, particularly if I do not know the company's financial viability. However, when I research and understand a business and its industry, I have a naturally built-in advantage over most other investors. If I invest outside my knowledge base, I may not know the subtleties and complexity of the company in question. Thus, proper due diligence is critical.
No 2 - I will never put all my eggs in one basket. If I put all of my eggs into one investment, one negative event could damage my entire portfolio and, therefore, my financial future. Diversifying my portfolio helps reduce my risk so that if one of my investments underperforms, it doesn’t necessarily impact my entire portfolio. I invest in index funds, mutual funds, or exchange traded funds (ETFs) which is an easy way to diversify my portfolio through just one investment.
No 3 - I will never follow the crowd. Following the crowd is another investing mistake since it doesn't involve research but instead mirrors what other investors are doing. Many people only hear about an investment after it has already performed well. If certain stocks double or triple in price, the mainstream media tends to cover those moves as hot takes. Unfortunately, by the time the media gets involved, the stock may have reached its peak. At that point, the investment is likely overvalued.
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