Some investment advice for younger folks

Looking at the market today, particularly tech stocks, and posts I see on Blind about people telling others to keep loading even at ridiculously high values, I couldn’t help but make this post, especially for a lot of younger folks (mid 20s to low 30s) who might have cash or invested stocks without much market experience. As someone who’ve seen the dot com bubble, the 2008 financial crisis, and the COVID crash, I’m hoping that my words will be beneficial to a few. Below are a few tips that are generally true (there’s always exceptions to every rule). First, realize a few market psychological factors: During uptrends, there’s a false “feeling” that stocks always go up (triggers a lot FOMO buying) and similarly there’s a false “feeling” that there’s no bottom when stocks tank (triggers a lot of panic selling). This causes the average retail investor/trader to lose money when they buy at market peaks (FOMO) and panic sell during down times. Another statistic that’s useful to keep in mind: about 80% or so of average retail traders lose money. About 80% or so of average short positions lose money. Moral of the story: odds are stacked against retail traders, especially those who short the market. The reasons mentioned above explain why people lose trading. Investment is different (buying shares of good companies and holding longer term). Through July and August, most tech stocks accelerated without fundamental underlying business and economic factors. In the last 3 weeks, almost all tech stocks have pulled back 20% or more (except a few). A lot of that unjustified rise was due to ridiculous price target hikes by so called analysts and a lot of young(er) “Robinhood” investors buying because of FOMO. Pump and dump is not a conspiracy! Big boys (the sharks/wolves, sorry animal lovers) are there to make billions for themselves, not for you. Yes, “analysts” working at big banks do pump the stocks to sell behind the doors at market peaks leaving the average retail investor in the ruts with heavy losses! Fundamentally, there is no problem with that if everyone could hold on. Since good companies always recover given enough time. However, the problem is that many people have stop loss orders, use margin, panic sell (really tough to see negative 10k, 50k, or 100k and so on). And as such they incur significant losses, which discourage future investments. With the above in mind, here are a few tips that will help you avoid losses. Really, common sense stuff that have passed the test of time. 0. NEVER use money you can’t afford to lose 1. When investing/trading, avoid margin money 2. Do not panic sell when market is down 3. Let your profits run when market goes up 4. “Be greedy when everyone is fearful and fearful when everyone is greedy” WB 5. Do not put your eggs in one basket! (Tesla might be an exception, but it is not a rule). 6. Do NOT buy fluff (case in point: Nikola) 7. Diversify, diversify, diversify 8. Generally, avoid straight up options trading 9. Generally, avoid shorting stocks 10. Buy at market dips and let your profits run 11. Avoid stocks while under news (more so if you’re a trader vs an investor) 12. “Pay a fair price for a good company than a good price for a fair company” WB 13. Don’t time the market with your retirement accounts (history is not on your side if you do) Nobody knows the peak or the bottom. So when should one enter or exit the market? Let’s look recent history. Before COVID, DOW was around 29k. For all we know, it could’ve gone to 30 or 31k. It didn’t. COVID happened and within two months, DOW tanked 30% or so. Basically the markets went back to before 2016 election. Of course hindsight is 20/20. So even if you had bought after an initial 10-15% drop, you’d still be up today. Similarly, recently DOW was pretty high. Specially the tech heavy NASDAQ. Now that it has pulled back by 20% or so, it might not be a bad idea to load up on say Facebook, Amazon, Apple, to name a few. Now these stock could drop more, but I don’t think it’ll be that significant. (Full disclosure: I own FB and Apple, among others). The probability of upside is higher than downside, especially if you’re using your own money (not margin) and holding for longer terms. I’m sure I’ll get some flak from those who’ve gone against what I have stated and have made money, but I believe those case are more of exceptions than common occurrence. Well, chime in and correct me if I am mistaken. Good luck to all!