Goodbye Savings: Words of Wisdom From a First-Time Investor Who Lost Money

Call them retail investors, amateur investors, or simply millennials with an excess of disposable income… According to Bloomberg, these first-time investors made up approximately 23% of all retail trading in 2021, effectively doubling since 2019.

Thanks to the rise of apps touting instant stock trading catering to a younger demographic, more amateur investors are diving into the stock market than ever before – and they’re making rookie mistakes along the way.

As someone who jumped into the world of amateur investing in 2021 and quickly looked at an account in the red due to questionable day-trading decisions, mistakes were made.

Here are the best tips from a first-time investor who lost money and learned some valuable lessons along the way.

Create a Plan and Stick to It

According to Alexander Koury of Values Quest, the most important question to ask yourself as a first-time investor is ‘Why am I investing, and what do I want to achieve?’ Having a game plan is the most important step in the process, and it will help you achieve your goals.”

If you believe in a company (and, in turn, its stock) enough to invest and potentially make money, that’s one thing. Having the discipline and patience to see it through until you reach your financial goal is entirely different.

Let’s use Carnival Cruise Lines ($CCL) as an example. Due to the pandemic effectively halting cruising operations, its stock plummeted from about $43 in February 2020 to approximately $8 in March 2020. Over two years later, it has not reached its pre-pandemic heights, closing at $18.34 on April 8, 2022.

If you’ve done your research – and even if you haven’t – and your primary reason to invest in CCL is that you believe the company’s stock will eventually rise back up to pre-pandemic levels, then stick to that plan. Often, holding a stock for more than 12 months “can help you ride the highs and lows of the market, benefit from lower tax rates, and tend to be less costly,” according to Investopedia.

Don’t Overreact to Normal Volatility

The stock market is volatile by design, with individual stocks frequently flipping from positive to negative and back again throughout a day’s trading session. For a better perspective, let’s look at the performance of Airbnb ($ABNB) on April 8, 2022:

9:30 am EST: Opened at $162.52

10:00 am: $160.10

1:00 pm: $164.70

4:00 pm: $162.56

If $10,000 of Airbnb stock was purchased at market open on April 8, the shares would have lost over $230 of value by 10 am. Yet, by market close, these losses were fully reversed.

Don’t fall into the trap of thinking that every small movement – either positive or negative – is a reason to react impulsively, such as panic-selling your position.

“It can be gut-wrenching to see your investment take a sudden dive. The urge to staunch the bleeding can be overwhelming—to salvage what you can and wait for the dust to settle. Ironically, this can be the single most damaging thing an investor can do,” says Morgan Stanley’s Senior Investment Strategist Dan Hunt.

He also warns about the finality of panic-selling: “Selling into a falling market ensures that you lock in your losses.”

Don’t Let FOMO Get to You

Meme stocks like Gamestop ($GME) and AMC ($AMC) have made headlines over the past two years, making many amateur investors rich seemingly overnight. However, you must keep in mind that these instances are anomalies – and you can’t see the future. Of course, nobody wants to pass up on a stock or investment opportunity that could make you rich, but don’t let the fear of missing out control you.

“Watching others make a lot of money on a certain stock or token having a massive rally may make you feel obligated to join in and get in on the gains, even if the logical part of your brain is telling you that the biggest rewards have already been had,” writes CNBC’s Nicolas Vega.

Remember: most Americans did not invest in Apple in 1997, when a $1,000 investment would’ve made you a multimillionaire today, according to CNBC. As a result, most people missed out on an opportunity that looks like it was a “can’t-miss” in retrospect.

Delete the App. It Can Be Addicting

Americans can’t put their phones down. According to a study by App Annie in January 2022, the average time spent on mobile apps was four hours and 48 minutes. With money involved, it’s only human nature to want to track your investment just as often as you would refresh your Twitter feed or check Facebook. But, take it from somebody who knows: it only leads to stress and addiction.

This tip is primarily geared towards Robinhood’s app. According to critics, “the app uses exploitative practices to induce gambling in its users.” In addition, the National Council on Problem Gambling has identified certain dopamine-inducing features in Robinhood that hooks users.

Triggers like green confetti to congratulate users for making transactions, excessive emoji usage, instant gratification via one-click stock purchasing, and a generally bright, vibrant, casino-like color scheme are just some of the features that can lead to addiction.

For the best peace of mind – and in the spirit of sticking to your plan and not overreacting – delete the app from your phone.

Jumping headfirst into the stock market as an amateur investor can seem daunting. From the ease of depositing money to the addictive nature of the apps and services themselves, it’s easy to feel overwhelmed.

However, becoming disciplined is vital to weathering a worldwide financial market estimated only to make money for 10% of its investors. If you’re ready to make your first investment, heed these tips to avoid losing money.

Originally published at Wealth of Geeks

By Chris Phelan