In the early 2000s, I decided to enter the stock market in hopes of making quick money. At that time, any company with “dot com” in its name was skyrocketing. Over the course of six months, I made and lost money, ultimately breaking even in the process. However, the experience left me confused and jaded with the stock market, contributing to a ten-year hiatus from Wall Street investing. Here are a few valuable lessons that I learned about stocks from that initial period.
Take Trading Advice with a Grain of Salt
A work colleague piqued my interest on day trading with his own stories of fast money. It seemed with every trade he always made a few thousand dollars. As I started my venture, I bought the same companies he did in hopes of riding his success. Unfortunately, this strategy failed. I purchased companies that tanked because I relied too much on his trading advice without conducting my own research (remember WorldCom? Yeah, I bought that). Even opinions dished out by talking heads from the financial networks need venting. Lesson learned: always be skeptical of stock tips!
Understand What You are Buying
Another mistake I made was not quite understanding the companies I bought in to. I mostly purchased technology start-ups or no-name retailers with flashy websites. At a cursory glance, they all seemed like winners destined to succeed. However, I never really understood the business model of any company that I briefly owned. Because of my ignorance, I couldn’t properly evaluate the market risks for each stock and often missed prime selling opportunities. Lesson learned: don’t buy the company unless you can explain what it does!
Quality Companies are Better
I spent a lot of my time and money looking to purchase shares of “the next big thing.” I wanted to get in on the ground floor of some small company that would eventually explode and bring in a fortune. To the contrary, all of the businesses I bought were second and third tier ventures. Most failed to survive the dot com fiasco and I sold on the way down, failing to maximize profits. Instead of looking for the next Apple, I should have just bought Apple. Holding superior companies over the long term is how to truly build wealth. Lesson learned: quality never goes out of style!
Don’t Be Scared of the Stock Market
While my escapades from the early 2000s soured my views on Wall Street, investing in stocks is one of the best ways to build wealth over time. If you decide to purchase stocks as a part of your financial portfolio, have a plan and definitely learn from my mistakes. Happy investing!
I am not a professional financial manager, just someone interested in taking charge of my own money. Please conduct your own research before investing.
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