Do’s and Don’ts When Buying Stocks

We all know that stock investing is one of the riskiest forms of investments. Stocks can go up and down depending on several factors. In one of my earlier posts, I discussed several stock trading tips to all my readers investing in the stock market.

It is important to do your homework before engaging yourself in the stock market. Once you’ve done your homework and consulted with a financial planner or broker, it’s time to take the plunge. To make informed decisions, you need to review the list of dos and don’ts.

Here are some of the do’s and don’t that I’ve learned as part of the Rich Dad’s Coaching Program:

What TO DO when buying stocks

  • Recognize that you aren’t in control of the management of stock investments. You’re investing in the management of the companies.
  • Maintain meticulous records of all transactions. If you work through a discount broker, be sure you’ll get a year-end tax statement.
  • Sell when others are buying, buy when others are selling (but only if the company is sound). Better yet—unless you’re a sophisticated stock picker—leave your money in for the long term.
  • Be careful when buying “best picks”; they may be one-time performers or overpriced due to popularity.
  • Invest in a minimum of five stocks so if one does poorly, the others may buffer the loss.

Rich Dad Tip:

“Avoid transactions through panic; keep your emotions under control.”

What NOT TO DO when buying stocks

  • Never invest in a company without reviewing its financial status, prospectus, and SEC reports.
  • Don’t give your broker the authority to trade without your approval.
  • Don’t be afraid to disagree with a broker’s strategy or stock pick. At the same time, you should think twice before ignoring the advice of a broker who has always steered you right.
  • If you’re picking stocks yourself, it’s not a good idea to invest in too many. Remember, you’re the one who has to track them.
  • Don’t sell low in a slump only to turn around and buy high. Avoid transactions through panic; keep your emotions under control.
  • It’s best not to buy stocks beyond your risk tolerance.
  • Unless you have keen investor skills, don’t switch back and forth between stocks trying to catch the next wave.

Source: Robert Kiyosaki’s Coaching Program

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Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

19 responses on “Do’s and Don’ts When Buying Stocks

  1. There are two very important rules in stock investing:
    Rule 1. Capital preservation
    Rule 2. Don’t forget about first one.

    Many time people only thinks of making money in stock market, when comes to making loss they don’t know what to do, except for holding on to the stock and hope that it will recover. Some time it just won’t recover and it even get worse. It is important to cut loss asap to prevent further losses so to preserve the capital.

  2. I started stock investing about a year now. I opened an account on a Online Stock Broker. At first, I really invest my time reading many kinds of books about stock investing. Until this time, I still find time reading any books about stock. I started from small capital, and luckily compounded almost a month because of gain. So far, even the economy is in recession or not, I can say I made almost 100% of my investment. My technique, I study the chart, when there is any reversal pattern, I look for the news of that company, and if there’s any good news about the company, I go to stock quote(you can see the offer and bid of specific stock). On this I can see who is really taking over. If the Bids is more faster to execute with big volume, I can conclude that it is a bearish(sellers is taking over) and not to go on this stock. But if offer is executed faster with big volume, I can conclude that It is a bullish stock and I go for the stock. But If in any case, I buy the stock but it didn’t go on my expectation, I set a stop loss percentage that whenever that loss was reached, I will sell that stock and go for another one again.
    So far, my technique gave me a good return. But take note that this technique is applicable if you have time to see the stockmarket daily from 9:00 to 12:10 in the morning.
    Hope this gave you an idea guys!

    • Hi Engle, thanks a lot for sharing your tips on how you trade stocks. I really appreciate you for giving time to make such comment here. 🙂

    • This is pretty helpful. Just like you, I am doing all my homework and studying as much as I can about the companies and tips on investing. I figure it’s always safe to learn from those who have experienced it that’s why I’m here at MillionaireActs and I have been blog hopping lately to other finance tips blogs. Thanks again for the tips.

    • Johna, if you really want to make a deal out of the stockmarket. Find the book “Invest like a shark” or ask me to send it to you. You will be surprise by these investing techniques.

  3. I really believe technical analysis is a bunch of kim chee baloney Engie, but that’s just my opinion 🙂

    My wife has a pet rabbit, and every time we come home to an empty tray of food, we find that to be our bullish indicator. Then we buy buy buy the next day! That is my technical bunny indicator.

    Always input price limits folks!!

  4. Nice one!

    Zen Foo’s Note:
    Rule 1. Capital preservation
    Rule 2. Don’t forget about first one.

    I want to add 1 more
    Rule 3: Make your Capital resources with you anytime to execute the trade as an when reqd.

  5. But always it’s the individual who has to decide. Anyways stock market is the easiest and the most risky to make money. It takes few years before you learn to master the stock market, but still its not guaranteed.

  6. Hi Tyrone, maybe you can expound on this “Sell when others are buying, buy when others are selling (but only if the company is sound). ” Thanks!

    • Hi Joseph, when there is a great demand for a particular stock (“when others are buying”), you need to sell that particular stock if you hold it. This will be beneficial since by law of supply and demand, the stock price will tend to increase.

      Conversely, when there is a great supply (“when others are selling”), it’s time for you to buy since again, by law of supply and demand, the stock price will tend to decrease.

      “But only if the company is sound” means that you need to be careful of the particular stock that you are going to buy or sell as stated above. Some stocks are prone to manipulation. Therefore, it might send a wrong signal. Sample of this is if a company is in the brink of bankruptcy, stock price of that company tend to fall. In this case, it is obvious that you shouldn’t buy the stock of this company even though a lot are selling.

    • Nice! You’re really great in explaining things to layman or newbies like me. This sure will help me a lot in the future when I venture in stocks. More power!

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