The thinking and methods of stock investment must be understood

Most people start participating in the stock market with the right mindset, but just a few months later, most of them have completely changed. This article is a very important orientation when investing in the stock market.

Proper Investment Thinking

Your initial mindset when you still didn’t know anything about stocks is absolutely correct. It can include the following points:

1. Buying stocks of good companies, mostly bluechip stocks like Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOGL/GOOG), JPMorgan Chase & Co. (JPM), Microsoft Corporation (MSFT) etc., was your initial idea.
2. Buying and holding for several years, buying for children and grandchildren, buying to hold, etc.
3. Reasonable annual profit (25 – 40% is the target)

This is almost a “saintly” mindset but is extremely accurate and doesn’t require any formal education.

Mindset Change Due to Greed

After buying stocks for the first time, you start watching the price. About a week later, you start to feel that your stocks are “slow and heavy.” Other stocks are hitting the limit session after session, some boast a 30% gain, others triple, while yours stand still. At this point, you feel discouraged about the stocks you’re investing in. You sell them and start floating after stocks with more fluctuations.
All three of your initial mindsets will be thrown into the trash, and you form a new mindset:

1. Buy stocks that can increase in price (Using technical analysis, stock tips, news, etc.) without caring about business performance results.
2. Buy for 3 – 5 days, then sell, or a few weeks at most.
3. Every week, aim to make 10 – 20%, etc.

You see, it contradicts all the criteria when you first started, also because of greed. “Getting rich slowly” really isn’t comfortable at all.

Which Investment Thinking to Use?

Your initial thinking is definitely correct, but calling the later thinking wrong is not exactly accurate. You need to clearly define your path and plan. Let’s classify into two groups: Holder (investor) and Trader (speculator) first.

Pure Investment Approach

The first thing is that we should diversify our portfolio a bit instead of just bluechip stocks as initially. It can be as follows:

1. 70% into top stocks, prioritizing stability & growth.
2. 20% into stocks that can explode or grow but currently have a medium market capitalization.
3. 10% for small companies or companies with high risks.

All should only buy and hold long-term. At least a few years are the right path when you choose this option. It could even be 5 – 10 years or longer.
You don’t need to spend time, no need to watch the board every day. Once a month, you only need to see the price chart 1 – 2 times to grasp the situation. Important notifications are sent by the brokerage via email, you don’t need to worry about missing anything.

Illustration of an investment portfolio according to this approach:

• 70% divided into: 30% for AMZN, 30% for JPM (Financial/Banking), 10% for PLD (Real Estate)
• 20% divided between WMT (Consumer Goods) & JNJ (Pharmaceuticals)
• The remaining 10% is divided, half to buy Alibaba (betting on China’s E-commerce), half to buy BioNTech (betting on mRNA technology, not just vaccines)

Note that this is just an illustration of portfolio allocations. If you are a bit more adventurous (or “risk-tolerant” in technical language), you can increase the percentage for the explosive or risk group. But not more than 40% for each type.

Pure Trading Approach

With this approach, you need continuous data to find opportunities to buy and sell after 3 – 10 days or 1, 2 months. It could be technical analysis, industry data, market movements, or “hearing from somewhere.”
Overall, this method is high in profit and fast, but we see very few people succeeding with this method. The skills required are very high, including handling stop-loss at the right time, which few people possess.

Market psychology & cash flow play a very important role in your investment decision. Good stocks are not a necessity.

You should set a baseline for yourself:

1. Do not trade stocks that are clearly “manipulated.”
2. Do not trade stocks with too low trading volume or market capitalization.
3. Do not trade stocks whose company situation is too dire.

Being a bit stricter in standards will avoid terrible losses in bad situations. You can still trade, but it’s better to trade companies that are at least average.
For bluechip stocks (top-tier), it’s not advisable to focus on short-term trading, as their movement is very slow and has few waves. “Following the trend” is a very necessary skill if you enjoy surfing.

Illustration: “Following the trend” of oil and gas amid the context of record oil prices and continuous increase in domestic gasoline prices.

Combined Investment and Trading Approach

Holding and seeing others earn daily can be disheartening, you can use 60 – 70% of your capital and follow method 1. It’s best to open another account for holding, and a separate account for trading. The holding part is mainly for buying and holding, with at least W1 (weekly) candle trading. The trading part is as per the above method.

Overall Assessment

Approach 3 is the optimal approach, and also improves your “itchy hands and feet” situation. If you have a business or something busy, choose approach 1. Don’t get caught up in approach 2, then be lazy in business, and later you won’t see any money from the stock market. With approach 1, your work is not affected, and after 5 years you will see the fruits.
If you are really agile and have time, willing to invest in knowledge and skills, choose approach 2. It can make money and make it fast, but it’s not easy.

Investment (approach 1) can be done by anyone and should be done. Surfing is also very interesting, but should only be participated in if it suits you.

Related post: 10 common Mistakes causing major losses for stock investors

Some people ask very silly questions (actually “tabloid” clickbait): “Should I quit my job to invest in stocks?”. I don’t understand what stock investment has to do with quitting a job? Surfing does require a lot of time and knowledge to be successful, but it is not considered an investment activity.