5 Things I Wish I Knew Before Investing In Stocks

This is what I wish I knew before investing in stocks.

I've been investing in stocks for 10 years. Several years before that I was investing in mutual funds.

I've had a successful investment journey and I've made a lot of money from the stock market.

However, I've also learned some painful lessons and lost money.

As a result, I've become a more experienced investor. I want to share these investing lessons with you so that you don't make the same mistakes that I made.

Keep reading to find out the 5 things I would have told my younger self about investing!

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Investing is a smart way to grow your money.

You want to make your money work for you. However, sometimes it can be hard to know whether or not you've made the right investment move. Everyone has a different investing strategy.

How you decide to invest your money will depend upon your financial situation and your level of risk tolerance. Nevertheless, the lessons that I'm going to share with you will be invaluable as you move along your investment journey.

I hope my experiences help you become a more experienced investor so that you can achieve investment success. Here are the 5 things that I wish I knew before I started investing in stocks. Let's dive in!

1. Do your research 

One of the cardinal rules of investing is to always invest in what you know. Ten years ago I started generating a lot of cash flow in my business. I had a lot of money sitting around that wasn't making me money. Thus, I felt pressure to do something with it.

I didn't want to spend much time investing because my business was consuming a lot of my time. Instead, I decided to sign up for a newsletter which I paid for every month.

In this newsletter, experienced investors told me what to buy and what opportunities they saw in the market. Because I didn't think that I had time to do my research, I blindly trusted these investors. That was a mistake.

I still made money overall, but there were better investments that I could have made. In short, I didn't know when to sell my investments because I didn't have an investing strategy.

If I could it all over again, I would have invested most of my money in index funds, primarily large-cap companies. When you invest in index funds, you can invest in one stock that owns many different companies.

Thus, you get diversification from that. More importantly, you can be a passive investor. Index funds are the only investment that I can confidently say I will hold forever. They are based on a sector of the economy, which is something that always goes up, long-term.

2. Take the emotion out of investing 

In the short term, the market is shaped by human emotion. Emotion-driven investing is a recipe for disaster. When people are fearful, they end up making poor investment decisions.

Ideally, I try to avoid having any emotion associated with my investments in the short term. I now know that the market will go up and down.

Take it from Benjamin Graham, who is the author of the book The Intelligent Investor. He says, “In the short run, a market is a voting machine but in the long run, it is a weighing machine.”

People buy and sell based on what is popular and what is not. In the short term, a lot of companies may be inflated in value because it's a hot stock that everyone is talking about. However, long term, patience is key.

That's when the value of a company matters most. This is why I am a long-term investor. Check-in with yourself – do you freak out when you see that your stocks have dropped a certain percent, to the point that you want to sell?

Similarly, do you get overly ecstatic when your stocks go up? Be wary when you respond in these ways. Focus on the long-term. As long as the trend is going up, you're good.

3. Be Patient

Patience is a challenging skill to learn. However, as you gain more wisdom and experience as an investor, you will become more patient. Let's go back to the situation I described above where I had a lot of money sitting around.

I felt pressure to invest in something because my money wasn't doing anything for me. In the early stages of my investment journey, I forced myself to make investment decisions too quickly. In December of 2019, I published a video titled What I'm Doing To Prepare For The Next Recession.

I didn't know that there would be a stock market crash based on a pandemic. However, I did know that a recession would inevitably occur. At the time, I was learning about the cycle of the stock market.

Early on I wish I knew that every year there is a correction in the market where it drops up to 10%. Every ten years, there has always been a crash of 10% or more.

I'm a fan of Ray Dalio, one of the greatest investors of all time. He is the CEO of Bridgewater, which is one of the top Hedge fund companies in the world. He has a great video on YouTube titled How The Economic Machine Works that I recommend you watch. Inside that video, he talks about how we were due for a crash.

I view a market crash as an opportunity to buy the stocks of great companies at a discount. Thus, I had the patience to hold onto a lot of cash and wait for an opportunity to arise.

At the same time, I still wanted to put some of my money to work.

You don't want to sit and wait forever. You may miss out on some of the gains. However, I was holding the bulk of my money for when a crash occurred.

Sure enough, the stock market crash happened in March of 2020. I had one million dollars in cash that I was willing to invest, so I went on a shopping spree. I bought a lot of companies, including ETFs and individual stocks. These were large-cap companies that were on sale.

In the words of multi-millionaire investor Warren Buffett, “Investors should remember that excitement and expenses are their enemies. And if they insist on trying to time their participation in equities, they should try to be fearful when others are greedy, and greedy only when others are fearful …”

This quote speaks to the emotion-driven piece of investing that I spoke about above. When people are fearful, they end up selling their investments. This is an opportunity for you to be greedy.

I was greedy. As a result, my investments have paid off tenfold since the market recovered. This is a great example of what can happen when you're patient with the stock market.

4. Know when to sell, and be OK with taking a loss

When I first started investing I never wanted to sell anything. I didn't need to sell my investments because I didn't need the money. However, when you're an investor, I've learned that you only lose or make money when you sell.

If you invest in something and it goes down, you don't lose that money. It's only when you sell that stock that you experience a loss. The same thing happens when the money goes up.

Even though certain investments may recover over time, if you wait too long, you'll be missing out on other investment opportunities. Let's say that I put $20,000 into one stock but I lose $10,000. With that $10,000 you still have left you could wait, but you risk stagnation.

I've learned that it's OK to take a loss if you invest your money into something that will allow you to get your money back faster. Back to the example above, you could take your remaining $10,000 and put it into a better investment, like the S&P 500. It never feels good to lose money, but you have to look at the big picture of your investment portfolio.

5. Have fewer investments and a more simplified portfolio

A mistake that I've made in the past is investing in too many stocks at once, especially during the pandemic. The problem with having so many different stocks is that it's difficult to manage all of them.

To be a great investor, you have to pay attention to what is happening. There will be times where you might need to sell or pivot. The only way that you know when to do that is by being in touch with what is going on with the companies you've invested in.

AT&T is a good example of what happens when you aren't up to date with a company. Until recently, they've been known as a high dividend-paying stock. This stock is a staple for a lot of retirees because it's a great income investment.

Recently AT&T decided to change their business and they decided to cut their dividend. Thus, it's a lot less than it used to be. That's not good for people who depended on that money as retirees.

When it comes to simplifying your portfolio, start by evaluating what your long-term investment goals are. Once you know what that looks like, you can create an asset allocation. An asset allocation is an investment strategy where you distribute your investment portfolio among different asset classes.

These are the 5 things I wish I knew before investing in stocks.

I think that these are valuable lessons for any investor. However, everyone has a different investment journey. The lessons that you learn may be different from mine.

There will always be ups and downs in the stock market. Everyone loses money at some point. Don't let investment losses stop you from investing altogether. If you learn from your mistakes, you will make better judgments in the future.

On that note, happy investing!

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