Practical Tips for Investing in Stocks

You see a lot of tips lists when it comes to stocks and investing. While I haven't been investing for a lifetime, I have really learned some important principles that can mean the difference between making money and losing it.

Emotion is your enemy. You've probably heard this before, but really is the truth and the most important thing to keep in mind. Keeping your emotions out of your investment decisions is what separates Warren Buffett from the casual investor who is weeks behind the curve. We need to keep the fundamentals in mind. If any of your actions were result of fear of losing money, then you may simply have too much money invested. The best way to look at it is to only invest money that you can afford to lose. But then again, can anyone afford to lose any money? Stocks are a gamble; they're no different than slot machines or playing the lottery. No different, that is, except for the fact that gains and losses are always temporary. And that leads up to this next point.

Have an exit strategy. Everyone knows to buy low and sell high, but "low" and "high" are relative terms. You simply can't buy at the lowest on record low or sell at the crest of every high in the market. The thing you can do, however, is to set a record goal, a certain amount of value your stock must reach for you to sell it or buy it. As soon as your stock gets , take action. This seems simple enough, but when the time comes you'll find that you can't help but be tempted by the possibility of more gains. Rather in my career, I repeatedly made the mistake of ignoring my exit price as soon as my investment got there for fear that it might go higher and I would miss out on great gains. The result, time after time, was that I ended up buying and selling at the worst points. As soon as I learned the discipline to commit to exit prices, I started making gains without worrying about the little bit of extra money I could have made if I had predicted the future. To be practical, you can never catch a true bottom or true top. The same goes for losing money. Realize that everyone loses money on a trade once in a while, and the ones who maintain enough money to trade another day are the ones who cut their losses early. In other words don't hold on to a losing trade if you really don't see a turn for the better anywhere in its future.