I am a newbie in the stock market.
I started last year, as a means of making my money work for me. So what are the key lessons from my short one year experience as a retail investor?
Here are some interesting lessons that being in the stock market has taught me throughout this year:
1. Rumours are just rumours.
“We are the next big thing!”
How many times have you heard from companies like these?
However, most of the time, they are not. When we look deeper, there is nothing innovative or revolutionary about it.
For example, Nikola published this video of its electric truck as it was seen as functional and moving. In fact, it was not powered by electricity, but it was driven by gravity.
The truck was not functional but the Nikola team decided to push out this video of the truck rolling down a hill. The truck was just rolling down a hill and was not able to be driven.
Rumours are cheap and efficient at generating buzz and excitement.
At one point Nikola had a market capitalization above Ford’s, despite the fact that the electric vehicle maker said it would not generate revenue until 2021.
In September 2020, General Motor (GM) was taking a 11% stake in the company. Shortly after that, a short seller report from Hindenburg accused Nikola of fraud and false statements.
Just because an established company like General Motors is investing in it, doesn’t mean that they have done their due diligence.
All noise, no product.
Dig deeper for what the companies are doing, instead of what they say they are doing. Same goes for people. They may say that they can achieve spectacular goals, but it is their efforts and results that matter in the end.
2. Humans are behind data.
As much as stocks depend on technical analysis, it is also humans are the ones behind these numbers.
Whenever overly rational investor look at hype investmetns like Gamestop and Dogecoin, they scratch their head and even pull their hair out. How can this even happen?
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In an ideal world, this market would be managed by rational actors who are aware of the underlying economic fundamentals — but, in reality, we don’t live in an ideal world.
If you believe the stock market is irrational, then it’s irrational for reasons that have nothing to do with fundamentals. In other words, the reason why stocks go up and down is unpredictable: people, rumors, emotions and gut feeling.
3. Doing nothing is the toughest thing to do.
Stocks go up, do not FOMO (fear of missing out).
Stocks go down, do not panic sell.
However, emotions are often in the way. Objectively, the most logical way as a retail investor is to dollar-cost average into the stock market, without care of the fluctuations.
This relates to the emotional part of investing.
The hardest thing to do is to do nothing at all.
This also relates to other things in life. When emotions stir within you, prompting you to react upon instincts, the most difficult action would be inaction. Remaining stoic in stressful situations is, in my opinion, a valuable skill to have.
Starting out in the stock market is always scary. After one year of being in the stock market, it is still scary. However, these lessons that I’ve learned from it is priceless.
Off to a new adventure!
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