From the Desk of Ian L. Cooper
Investing isn’t easy.
If it were, everyone would be doing it.
With anything practice and plenty of patience are required.
Even then, you’d be shocked to learn how many of us make it virtually impossible to find success at all. We try a million things. We get caught up in the fear of missing out. We follow the advice of whatever we hear on CNBC. We take advice from our know-it-all neighbor.
- Others aren’t aware of risk, thinking the stock market is a get-rich quick scheme
- Others don’t think long-term, and only want instant gratification.
- Others fail to trade without emotion.
- Others fail to diversify or identify what strategy is best for them.
- Others fail to learn from their mistakes. Instead, they do it over and over again, hoping the next time will be different.
If you truly want to find success in the market, you have to avoid those mistakes. You also need to ask yourself three essential questions.
Question No. 1 – What is My Personal Risk Tolerance?
You’d be shocked how many beginners will blindly throw money at the market with no research. That can’t happen. It’s a recipe for absolute disaster.
How much risk can you afford to take? Any money that you need to live or save for emergency should be kept aside. Aside from that money, how much can you afford to risk and potentially lose on a trade. If you can’t afford to lose $5,000 on a stock, why risk that much?
Question No. 2 – What is your Money Management Strategy?
If your answer is, “I don’t know” that’s a problem.
One of the biggest issues facing all walks of traders is a severe lack of discipline and structure in stock buying habits. Many fail to use stop losses, or even protect gains with a simple trailing stop loss strategy. For example, some investors buy a stock with a -25% stop loss.
Question No. 3 – Are you Diversified?
To build a diversified portfolio, you should look for investments—stocks, bonds, cash, or others. This way, even if a portion of your portfolio is declining, the rest of your portfolio is more likely to be growing, or at least not be declining as much. Diversification is key to investing success.