Investment Strategies for Beginners

I started to trade stocks in October 2008, a little after I created this blog. I decided it was a good time to be in the market after Lehman Brothers went bankrupt and the market basically collapsed. Since then I made some good trades and some bad ones. Overall I made a little money. Most importantly, I gained valuable experience in stock trading. Here are some lessons I learned.

Buy Low and Sell High

This principle seems so easy that it is often overlooked. Some people interpret it as buying when the price is going up and selling when the price is going down. It happens sometimes when price keeps going up or going down. It is hard to draw the line between the two theories. Professional investors will tell you that it is impossible to time the market. At any given point, the price has two directions to go, up or down. At special occasions, the chance of one way is much bigger than the other. That's when I would jump in. For example, on 02/11/2009, Dow dropped nearly 5%. The stocks that were worst hit were financials; BAC and ZION were down about 20%. Even JPM was down 10%. I thought to myself, the chance that BAC and ZION will bounce back is much bigger than they will continue to fall. I bought ZION; it went back 5% the next day. BAC gained 9% on the same day.

Never Touch a Stock that Has High Default Risk

I didn't buy BAC even though it had the same potential. It was actually a good stock for speculation. However, I am not a speculator, I am an investor. The default risk outweighs all the good it has. To me, BAC has high default risk. It could fall or the government could take it over any time. To keep my investment hobby going, I can't afford to buy a stock that could end up worth zero.

To Be Continued.