Strategy First

Instead of coming up with buy ideas, I think it is better for a novice investor to learn a strategy FIRST before venturing into the tail end of a 14/15-year bull market with high hopes.  That way when you decide to buy whatever you buy, you'll have a clear-cut idea of how or when to sell that same investment.  Maybe your sell point will result in a short or long-term capital gain, but if it is a loss, hopefully your strategy will get you out with minimal damage to your portfolio.  Folks, I trade for a living and I've been doing this shit since the dot-com era.  If there's one thing you need to learn, it's risk management.  Everybody talks about what to buy, when to buy, buy this or buy that but I rarely read any posts saying what somebody sold, when they sold, especially WHY they sold.  Learn how to sell a stock/bond/crypto before you buy, that way you'll never get hurt when that bear market comes ... and it's coming folks ... and when it does ... its gunna knock your lights out if you don't have a game plan.  I wish you guys the best of luck.  

I think your post is coming from someone with a  "trader's" point of view,... as opposed to an "investor's" point of view.  And yes, there is a big difference IMO.  Not that there's anything wrong with that in general.... but the first sentence in your post talked about "novice investors," so it become a big deal in this discussion.   


I would not advise anyone that is a novice investor to get involved in the game of trading stocks.    The first step for anyone that wants to learn how to learn to invest is to learn how to make that money available to do so.....  I.e.   """Save & Invest"""  .   

Now that you've gotten into the habit of having (more) money available at the end of each month, start to implement a plan to "dollar cost average" into an index fund (like the S&P 500).   Novice Investors don't need to learn about "selling".   You are investing bits every month that will help to buy shares on the dip (if in fact share prices go down).  Get into the mode of buying, not selling.   I consider myself an experienced investor, and I still don't sell my index funds under any situation... ever.   That is 90% of my portfolio, and it didn't see any activity at all in the last 12 months, except go up in value.  I only add to the funds if there is considerable market movement (< %10)... and that didn't happen this last year.  Happy Camper. 

So, the very small subset of the 10% which I have chosen to talk about on this site in recent weeks (PFE, INTC, F) represent such a small fraction, it's almost negligible in the total portfolio.  But it keeps me engaged in stock picking, I enjoy it, ... and for the most part, am successful at it. 

I truly hope you are successful at trading, but I know it is more difficult than being a patient investor like myself that still builds solid returns over time.  If I could give some bits of advice for the gamblers on this site, it would be this.  You need to learn to separate your fast-paced craving for sports betting from the patient investing in the business world  (And "day" trading draws a lot of similarities to gambling for those that do this) .  And if you are not successful in trading stocks... you could learn some sage advice from the index mogul himself, John Bogle. ... "Don't just do something... sit there."

Patience is key in this business...  Often times, the best decision is to do "nothing" in the investing world.  

Merry Christmas to all...  

@cave0707

 Good stuff.  I like to see discussions on this sort of thing.

@Rush51

 I typed a large response to this and meant to post before the games and then went jogging.  Guess, you addressed some of it.  But I will post anyway.

I think this is good, overall general advice.

But I would like to add a bit to it.

I think ‘investor’ needs to be defined, because they are not all the same and cannot really be grouped together.

You can be a ‘novice’ as an 18-year old university student, a 28-year old raising a family with a mortgage, a 48-year old that has no debt and is ready to start doing something besides just his 401k, or a 68-year old retiree.

To me, an investor is someone that is planning to hold something for a long time as a growth opportunity and/or income, like for dividends.

A trader is someone that is looking for ‘buy ideas’ and only planning to hold a stock for a short period of time.

I think investors will mostly look at fundamentals, whereas, traders will be more interested in the technical side of the stock.

To me, everyone should be ‘invested’ in their company 401k if available.  They should be maxed out in this or, for sure, make sure they get the maximum company match.

They should have it in a good S&P type fund.  That will be fine for any person to grow long term retirement money if they are starting a job.

This investing does not require an exit point.  It only requires an entry point and DCAing along the way with every paycheck.

If someone is going to ‘invest’ on their own, they simply need to mix in some good longterm growth mutual funds or ETFs that are well diversified.

So, the ‘plan’ for investing is nearly always the same:  set it and forget it.  Because you are ‘investing’ for the longterm and for retirement.  You will need to reevaluate your portfolio once or twice a year if you want to keep it in some sort of balance.

Now, a ‘trader’ is a whole different situation.  

You should only become a ‘trader’ once you are fully ‘invested’ for your future.

This is the type of trading that needs to have a solid plan as far as entry and exit points in place.  This will be something you have researched or someone else has.  This could be something you read about or someone you trust recommends.  It can even be something you are simply interested in or know something about in an industry or a certain product. 

This type of trading can be day-trading, scalping, speculative, or even an out-right gamble.

As long as you are out of debt and fully invested for retirement, this type of trading is fine.

But you should study up a little bit on picking entry and exit points and why.

Once you make a trade like this, you should always, always, always have a stop loss in place.  Depending on the type of reasoning you have for buying it you should have a take-profit point put in place as well.

Basically, you ‘invest’ for your future and retirement; you ‘trade’ for profit.  It can be simply a hobby, like most folks with sports gambling.

But it will always come down to a person’s risk tolerance, time frame, goal with the particular trade, and whether any of those change along the way.

So, while it may be good to have a ’strategy’ with trading, I do not think it is separate from the ‘buy idea’ as much as always a part of the whole package.

I also do not think a ‘bear market’ should affect an investor much at all.  You have to have the mindset that stocks have always recovered and will continue to go up eventually.  Yes, it might frighten someone if the market dips and they are close to retirement.  But they should know this might happen and be very prepared after 30-40 years of investing.

A ‘bear market’ should not bother a trader that much either.  It can be frightening.  But if you have a stop in place, that is the loss you were willing to take at the beginning of the trade anyway.  Then you can reassess.  If you still like the trade and you did not get stopped out, you can even see it as being on sale and an opportunity to add to your position.

A trader can make money in any type of market — bull, bear, or sideways.

“Plan the trade, and then trade the plan.”

If you do not have a plan for a trade, or a reason to be in a trade — then you really do not have a trade — but a gamble.

If you are going to be an investor in single stocks you need to know how to read the financial statements, understand what analysts are saying, research a company’s prospectus.

If you are going to be a trader you need to know how to read a chart and know what the news and the sentiment of the stock is.

If you are going to scalp or day-trade, learn the LEVEL II, learn the LEVEL II, learn the LEVEL II.

Some firms used to make you learn to trade without charts to start with, you could only use the LEVEL II.

Whatever, your style or method is going to be — get very, very familiar with it.

Some folks will advocate ‘paper-trading’ to start.  I see where it can be a good idea.  But I really do not think it is necessary.

I think if you are in the right place financially and mentally, you will be fine.  Just start with the amount that you are comfortable with and money-manage well and learn the job.  Because you should treat it just like a job if you want to be successful.

The ‘reason to sell’ should be once something changed.  Just as they say in a hedge for a parlay or a buyout in a sports bet.  If the reasons you got in it in the first place have not changed, then you should still have the trade.  If something has changed, then you should look at it again and decide on getting out before your stop loss was hit or your profit goal was reached.

Otherwise, there is no ‘reason to sell’.  It will sell itself once it reaches the profit goal or the stop loss.  It can be argued that if you do not have the patience or the time to wait that you can also use a set amount of time to simply get out of the trade also.

The last thing I would add is that it can be said the latest ‘bull market’ really started back in late 2022.  It can be said that it might all be part of a longer term ‘bull market’.  For that matter, the whole market forever can be called a ‘bull market’.  So, I am not sure we are on the ‘tail-end’ of it.

But if you are an investor, or a trader, and do not expect some dips or bear markets — then you are not ready for the markets.  I think most do realize they are inevitable. 

Raiders... Agree 100%, particularly in the areas in bold.  This is how I differentiate the two as well .    

I think through everybody's contribution,  this thread is already setting itself up for how to approach investing/trading successfully....  

I agree.  A good start for a thread.

I think the way I would look at it is the investing is more along the lines of good growth stocks and funds.  Where you have a good mix and plan to let others 'manage' it for you inside of a fund, except for the great stocks that will 'manage' themselves through sheer demand and control of a market.

I think trading is along the lines of categories of buying 'potential' stocks like a lot of the AI startups things or depressed stocks.  Then some subsets of trading are the scalping when you see good or bad news or opportunities.  Then the day-trading is along the lines of trading the volatile movers everyday.

I have been doing all of it for so long that it is easy to assume everyone differentiates the various areas well enough.  But they are all very unique things in reality.  I know folks that are specialists in one area and not even interested in others at all.

They all can take different mindsets to handle correctly.

I wish this was required teaching in all 50 states for High School Students, for one semester.    A semester of "Personal Finance"

We need to get more people conditioned to believe that they have an opportunity to be successful.. And immensely successful if they start early.  Investing is not reserved for some exclusive club of wealthy people.  It is available to all... They just need to arm themselves with the knowledge to know what to do... 

The really important thing to me about personal finance is the problem with starting kids out with debt and urging them that they need credit.

The problem with personal finance is that it is not taught in school, like you say, or at home.  Unless, your dad was a CPA or your parents just happened to instill it in you -- then you have to learn it the hard way.  So, therefore, investing is not taught either.

@Raiders22

@Raiders22

 100% correct !  And I hate that we are encouraging HS graduates to take on massive amounts of debt to get a college "education" ( I mean "indoctrination").  To make matters worse, I read an article in WSJ about 6 months ago that said roughly half the jobs of that these college grads get don't even require a college degree !  

Wow, I didn't think my one post would generate much of a discussion but it looks like there's some interest here.   FIRST, let me clarify something regarding the term "novice investor" vs a term I didn't use "stock trader".  I come from a different perspective due to my investing/trading background so I use the term "investor" differently than some folks.  I can be out of a position in a relatively short time period (day/s and many would consider this day trading, swing trading, etc, etc) but I also can be in a position long-term (years and most would consider this time frame investing), all of this depends on my "sell rules".  But I prefer not to use the term trader since that doesn't accurately describe what I wish for YOU and how I've made my money (quote from Jesse Livermore "It never was my thinking that made me the big money for me. It always was my sitting.")  I'm not here to discuss the usage or define trader vs investor for this thread.  SECOND, I clearly  mentioned "stock /bond / crypto" which is not a basket of investments like an index, stock, balanced, asset allocation and/or any other type of FUND, I meant individual securities.  And what you decide to trade/invest/etc, etc, etc, is up to you. THIRD and lastly, it is in your best interest to learn how to sell an individual security.  Why do you ask?  Because selling also encompasses RISK MANAGEMENT.  You can hedge, yes you can, you can diversify, yes you can but if you go in dancing with individual stocks/cryptos/etc,etc,etc without a selling plan (which most importantly includes cutting your losses = risk management) you WILL GET BENT OVER and it will hurt. This is how most stock/crypto folks lose a fortune, they never learn how to sell.  Don't let that fool be you.  Maybe I should not have mentioned the status of the current bull market and the timing of when that bear arrives since I don't have a crystal ball, but I don't care one way or another as I'm prepared for it.  I want you to be too.  That's all folks.  My background? Analyst when I was young, dumb, drunk, doing drugs & Portfolio/Fund Manager when I was not so young, boring & mature, ... and now flying solo as my hair has turned all gray.  Good luck folks, I wish you GOOD FORTUNE and the VERY BEST NO MATTER WHAT YOU DO IN LIFE!!