Before Buying: 3 Rules of the Investing Game
This is the FIRST thing I share with all my subscribers.
Before you dive into strategies, market trends or stock recommendations … you need to know the “rules of the game.”
This step is vital.
Today, I want to extend those rules to you!
Before you start building your Bold Profits portfolio, I’m revealing three key tips for success when investing your money in the market — tips that most investors forget.
Check out the video below and find out how you can edge out Wall Street investors with these rules of the investing game:
3 Rules of the Game
Rules of the Game are basic tenets of speculating and investing that I feel most regular investors and most new investors just never get the guidance about. As a result, they end up making mistakes. They end up losing a lot of money, giving up and then later on missing out on huge gains.
Rule 1: Never Go All-in
The number one rule, the one thing I repeat endlessly across all my updates is: Never make an all-in bet on any single stock. Many of you will be thinking, “Paul, all I have is X dollars or Y dollars and how I can do anything other than that?”
One of the ways you can avoid doing that is if you are going to buy one single stock you can buy a kind of stock called an ETF, which is an aggregation of 20, 30, 50, 100, in some cases, 500 stocks. An ETF has many stocks in it, so it’s one way you can get around it. Let me go back and explain why it’s important to not make an all-in bet on any single stock.
Say for example you are picking a stock like Apple or something like that, you never want to bet all your money on one, single company for any number of reasons. Number one, all your money is now all in one company. Obviously if it goes up you are pretty happy.
However, if it goes down, now you have lost money. If you are terribly wrong and you caught it at the wrong point in time where it is going to collapse in price by 30%, 50% or 80%, now you are sitting in a loss position for a long period of time. If something were to happen to the company, say they went bankrupt, now you have all your money sitting in one company.
It can go to zero. The other thing many people may not think about is you may pick the stock at a point where it’s going nowhere. Now other companies are going up and what you will end up doing is have to sell out of the stock to try to catch up with the market by owning other stocks.
You’ll just keep flipping from one company after the other. Again, continually making all-in bets, chasing the market and never making any money. This is why I tell our readers to have a portfolio. Instead of making an all-in bet, I say have a minimum of five stocks.
Rule 2: Give Your Portfolio A Minimum of Five Stocks
That’s a minimum. That’s not the ceiling and that’s not the maximum. That’s a minimum of five stocks. That way you have a small portfolio where, even if you are getting one stock wrong, you have four stocks that can work well. A good example of a mini portfolio is our STUF portfolio.
It’s Spotify, Tesla, Uber and Facebook. It’s up nearly 100% thus far. If you look at it, you will see each stock has performed on a slightly different time scale. Initially it was Tesla that was up, then Facebook went up, now Spotify is also up and Uber is down. The benefit of that is that it allows you to hold on to companies even though they have gone down from your purchase price.
Many of you may not know stocks rise over time as their businesses grow. As people come to own it, they bid the stock up. Those come to represent gains in your portfolio. If you only own one stock, you have only given yourself one chance to win. You want to give yourself many chances to win.
Rule 3: Buy in Small Slugs
The third thing many people do is buy all their stock all at once. Many of you will think, “Paul, how else would I do this?” What I tell our readers to do is to buy their stock in small slugs. That’s just the word that came to me when I think about it. In other words, in little pieces.
Try to target the days when the stock market is down. Try to target the days when your particular stock has gone down and there’s no real reason for it. That way, you are able to capture and take advantage of volatility that’s there in the stock market day after day after day.
The stock market is volatile day after day. If a big seller wants to come and sell your stock, they are going to cause that price to go down. If a big buyer comes in, they are going to cause that price to go up. It’s to your benefit to buy into periods like the crash or periods where there is some rumor going around that something is wrong with your stock.
You can go in and buy a little bit more. Let’s say you are buying 100 shares. You might break your buying up into three or four pieces. You might buy 20 shares on one day, 20 more shares on another day and target an average price. Do that instead of going all in at once.
Now what everyone will do is want to stare at your account and pray and hope that it goes up. If you have timed it wrong or you have the wrong stock and it goes down, you panic and sell the stock. Now you do the same thing over and over, as opposed to using the market volatility to your advantage as an opportunity to try to capture stock.
It is completely unimportant, as long as you’ve picked the right stock, that you pick the absolute perfect low point. Many people try to capture the absolute low point and they sometimes miss out because they didn’t want to pay one cent more.
By taking the small slugs approach, you are buying a little bit each day, you always have a little bit in cash. That way you always feel like it’s an opportunity, as opposed to being all in and all the stock is exposed to the market. The market fluctuates and you start to panic. Then you want to sell.
Those are the three things I would tell you most people do not do because they’ve never really been told how to build a portfolio rather than just take a shot on goal with a single stock.
Just to recap, never make an all-in bet on any single stock. Second, hold a portfolio of a minimum of five stocks. Yes, I know my STUF portfolio does violate that, but you can add an additional stock of whatever you want to it if you wish. The STIXX portfolio has enough stocks in it.
The third thing is to really spread your buying out over a number of days. If you are buying a large position, do it over a number of weeks. If it’s a very large position, if you were a manager managing large amounts of money, you would do it over a number of months.
The idea is to try to capture the lowest price you can and target an average price. That way when your stock soars higher, you get the benefit of all those gains.
Editor, Profits Unlimited
I’ve been investing for more than 25 years. I started my career on Wall Street in 1991 as an assistant portfolio manager at Bankers Trust. I quickly advanced to prominent positions at Deutsche Bank and ING, managing multimillion-dollar accounts. In 2006, the owners of a $6 billion firm named Kinetics Asset Management recruited me to manage their hedge fund.