7 Rules for Stock Market Investing by Troy Sharpe, CFP®
Troy Sharpe: Seven rules for investing in stocks that you should understand to position yourself and your family to make more money over the long term with less risk.
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Hi, I’m Troy Sharpe, CEO of Oak Harvest Financial Group, certified financial planner professional, and host of The Retirement Income Show. If you invest in the stock market, if you’re scared to invest in the stock market, if you want to invest in the stock market, I want you to comment down below and just share some of your experience, or some of your fears, or some of your concerns.
What this is going to do is going to help me create more content based on you, the watcher, the subscriber, and what you’re interested in. The whole purpose of this channel is to get you more connected to your money. We need to do that, one by saving, but two, by investing. If we’re going to invest, we need to understand some of these fundamentals, just like a football player on an NFL team. You hear coaches say it all the time. It’s about fundamentals. It’s about fundamentals. We need to be doing the right things at a very basic level.
This video is all about helping you understand what are some of those fundamentals when it comes to investing in the stock market. Rule number one, we have to manage risk, and part of managing risk means having a long-term outlook and understanding that you are investing for life. When we look at the S&P 500 here, this is a five your chart. I want to just point out here that we have an 18 month period from 2015 to mid-2016 where the market doesn’t go up. Then we get this great growth in the market, and then another 18 month period where the market is basically flat.
If we’re not patient, we’re going to miss out on the growth. If we’re making irrational decisions and trying to accelerate growth when it’s not there, we’re probably going to lose money. We have to manage risks and part of that is understanding that we need a long-term outlook and understand that you’re investing for life. The stock market is not a get-rich-quick place. It’s where disciplined investors can make money over the long term by being patient and allowing capital markets to work in their favor.
Rule number two, avoid penny stocks. Oftentimes, I hear somebody say, “Troy, well, what about this stock?” I’ve never have heard of the name before. They say, “Yes, it’s this penny stock it’s trading for eight cents a share. I think I’m going to put money into it and get rich.” I’ll say, “No, you’re probably going to lose all your money because penny stocks are like gambling.” Avoid penny stocks.
Rule number three, do not make investing decisions based on what you hear on television. These shows are designed to generate ratings by appealing to your emotions. They appeal to your fear and your greed. They are not designed to help you get rich or even make money. They’re designed to increase the TV audience so they can sell ads and generate more revenue for the station. If they’re not appealing to your emotions, you’re not tuning it. Avoid making investing decisions by what you hear on television.
Rule number four, avoid newsletters like the plague. It’s not that newsletters don’t have good ideas. It’s that oftentimes we don’t have the discipline, the time, or the energy to stay on top of the decisions that we make. Oftentimes, there may be too many good ideas in some of these newsletters. It’s hard for us to sift through which ones we should invest in and which ones we shouldn’t. Instead of subscribing to these newsletters and trying to pick the very best ideas and then build a diversified portfolio, just buy an index fund. A lot easier, you can spend time with your family, do things you want. Rule number four here, let’s avoid newsletters like the plague.
Rule number five, avoid watching your accounts every day. There are plenty of studies out there and they all say about the same thing. The person who looks at their accounts every day averages about 2% interest over time. The person who looks at it once a month averages about 5% a year. The person who looks at it once a year averages about seven or eight, and the person who never looks at it averages about 10 to 11% per year.
The reason is the more we look at it, it preys on our emotions. That means we’re either going to get greedy and try to invest more, or we’re going to get fearful and we’re going to sell, and we’re going to protect our money because we can’t afford to lose it. Try to avoid watching your accounts every day and understand and accept that markets go up over time, but we have to be patient. We have to allow the day-to-day fluctuations to occur.
Rule number six, reinvest your dividends. A dividend is when companies share their profits with you simply for owning the stock. It may be 2%, 3% or 4%, maybe more, maybe less, but we want our accounts set up to reinvest those dividends. What that means is if we get a $100 in dividends, we want automatically that $100 to buy more shares of that investment. Then next year we’re going to have more shares. We’re going to get $120 maybe. That $120 we want to reinvest and buy more shares. This way over time it’s like a snowball. We’re gaining more shares. We’re getting paid more dividends, and that puts us in a position to build more wealth over time. Reinvest your dividends.
Rule number seven is when other people are very optimistic, we want to be cautious. When other people are very pessimistic, that’s when we want to be deploying capital when we want to be investing. Warren Buffet says it’s really good. He says, “Be fearful when others are greedy, and be greedy when others are fearful.” That just simply means we want to buy low and sell high. When everything is optimistic and it’s rainbows and butterflies, that’s when we maybe need to build up some dry powder.
What I mean by that is build up our cash reserves because when the markets pull back, we can then deploy that capital and make some money. When others are fearful and the markets are down and everyone’s pessimistic and the outlook isn’t so great, that’s when we need to be taking advantage. We need to be deploying some of that capital, investing it because while others are fearful, we want to buy low with the hopes of selling high.
If you enjoyed this video, please share it with a friend or family member, because the goal is, is to help to dispel some of these myths that are out there and help you become a more educated and better investor. Hit the like button down below and subscribe to the channel. Hit that little bell icon so you can be notified when we upload new content with the goal of keeping you more connected to your money so you can be a better investor.
