When investing, you must master some basic knowledge to help you make the right action at any time. Or, avoid losing a lot of wealth due to mistakes at some time.
• How do you know if a stock is undervalued? You need to thoroughly understand the company - its expected earnings, P/E ratio, profitability - rather than just knowing a little, making decisions based on a percentage or the instantaneous decline in stock prices. Use your critical thinking skills and your common sense to analyze whether a stock is undervalued.
• Could it be dull or better? What are the competitors of this company and their prospects? How can this company make money in the future? These should help you better understand whether a company's stock is undervalued or over valued.
• When you buy stocks that everyone buys, you may buy stocks with inferior quality and high price. When the market corrects itself, you may eventually need to buy high and sell low - just the opposite of what you want. Just because everyone hopes that a certain stock will rise and that stock will rise, this idea is foolish.
• When you sell stocks that everyone is selling, you are likely to be selling stocks that are worth more than they are worth. When the market corrects itself, you buy high and sell low again. Fear of loss is often the sad reason for selling stocks.
Understand the impact of bond interest rates. When interest rates rise, bond prices fall. When interest rates fall, bond prices rise. Why is this?
• Diversify your portfolio by investing in different types of assets and liabilities. Generally, when one type of investment returns poorly, the other type will be good.
• Take a long-term view of investment. Choose a stable and huge investment and keep it for a long time. In the end, you will spend your money on the stock market for a long time, instead of being an investor in day trading, buying and selling dozens of times a day, sometimes even hundreds of times. Why?
• The accumulation of brokerage commissions. Every time you buy or sell stocks, your agent, in fact, is an intermediary who needs to charge a commission when connecting you with other sellers or buyers. These expenses really add up to cut your profits and increase your losses. Don't pick sesame and lose watermelon.
• It is almost impossible to predict large gains and losses. When the stock market is good, people may make a profit. If you don't, you have to anticipate when there will be a bull market. This is not impossible, but it is impossible, just like winning the lottery.
• Generally speaking, the stock market will rise. From 1900 to 2000, the stock market returned 10.4% annually on average. This is huge. There are more statistics here. Investing $1000 in 1900 will make you a net income of $19.8 billion in 2000. With a 15% return, it can be from $15000 to $1 million in just 30 years. Long term, not short term. If you worry about the small estimates in this process, you may mistake forests for trees.
Learn how to sell short. Instead of betting that the price of securities will increase, "short selling" means betting that the price will decrease. If you sell a stock (or bond, or currency) short, borrow a certain amount of the stock, as if you bought it. If it really drops, you "make a profit", which means you can buy the stock at the current price and return it. The difference between the amount paid at the beginning and the amount posted at the end is your profit.
• Short selling may be very risky, but it can also be another form of insurance. If you use short selling as a form of speculation, be prepared to ignite the fire - stock prices often rise, and you have to buy stocks at a "higher" price to pay off what you borrowed. On the other hand, if you use short selling to hedge your losses, it can actually be a good form of insurance.
conclusion
These are the basic knowledge you must master in the investment process. By investing based on this knowledge and constantly learning on this basis, I believe you will soon achieve your goal of wealth freedom.
