Stock Investing Lessons

Introduction

It is in everyone’s best interest to practice with a stock market simulator before investing real money.

• While this is essentially a business simulation, you will be fascinated by the insights you can gain from it.
• Practicing with virtual money is not a waste of time; rather, it allows you to identify potential stocks, build the habit of reading financial news, and make future projections regarding Malaysian stocks.
• Through the simulation, you can also see how your decisions significantly impact the final outcome.

NOTE: While financial editorials may recommend "turnaround" stocks, these remain speculative and may not always result in capital appreciation or a profitable business.

The Psychology Game

Active stock investing is far more than just "buying low and selling high" - it is a grueling test of human psychology and patience.

• Trading is essentially a war between buyers and sellers to agree on a share price.

After monitoring a few stocks for a long period, it is tempting to invest when a price nears its 52-week low.

• The "Fear Of Missing Out" (FOMO) kicks in quickly.
• Once invested, you become psychologically tied to the stock’s progress.
• However, if you misstep and buy slightly above the 52-week low, there is a high chance the price could drop further, causing psychological stress or regret.

NOTE: A 52-week low is not an absolute floor, but a guide.

Experience shows that if your order is not filled at the low, you might be tempted to "catch a falling knife" (buying while the price is crashing) the next time.

• This is dangerous and carries extreme risk.
• It is often wiser to wait for the stock to begin sideways trending before entering.

Constantly checking your portfolio with an "emotional heart" can be devastating to your quality of life.

• Use a low-alert notification system (e.g. through KLSE Screener).
• This frees you from checking your phone constantly and prevents you from obsessing over a stock that is just a few cents away from your entry limit.

Investing with Surplus Capital

While the idea of building wealth is tempting, value investing requires a "patience mode".

• This money should not be aimed at quick intra-day returns or rapid "flipping".
• Otherwise, you will be emotionally drained by market fluctuations.

As long as a company’s fundamentals (net profit, growth, and R&D) remain intact, the share price will likely fluctuate within a broader upward trend.

• By only investing money you would not need for several years, you can safely hold a falling stock and allow the market cycle to work in your favor.

Conversely, using "need-to-have" money creates a psychological urge to sell at a loss when prices dip.

• Leveraging (using margin) to gain extra profit is tempting but puts you at risk of a margin call, forcing you to sell at the worst possible time.

If you have excess capital, you can instead use a Dollar-Cost Averaging (DCA) strategy to lower your average cost.

• Always keep some capital in reserve as a backup rather than going "all-in" without a safety net.

Exit Strategies and Stop Losses

The stock market is unpredictable.

• If a bearish trend is looming, you may opt to sell while the stock is still high and you are in profit.
• Once the stock hits "rock bottom", you can reinvest to capture new gains.

However, avoid selling after a long price collapse; selling at the absolute low defaults your position to a net loss.

• Holding a losing but high-potential stock may offer "turnaround" value - have a little faith in the recovery.
• Nonetheless, it is dangerous to hold onto a dying business model.

Penny Stocks vs. Blue Chips

While penny stocks are cheap, the price fluctuations (even by a few sen) are massive because you are usually holding a large number of shares.

In contrast, expensive stocks may fluctuate less in terms of percentage.

Regardless of the share price, it is best to practice value investing and maintain a margin of safety.

Realizing Gains

Depending on the nature of the business, once a share price reaches an unprecedented peak, you should consider selling to capture the profit.

• Any unrealized profit is not a true gain until the position is closed.
• Remember: for every significant "up", a "down" trend is usually on the horizon.

Summary

The lessons here are not "bulletproof".

• If these principles were simple, everyone would be a millionaire.
• The real war happens during actual trading - it is an emotional and psychological battle between your logical mind and your impulses.