In 2021, retail investors are asking how to profit from the stock market in this new COVID market environment. Some are questioning if the current conditions are the new normal and what this means when it comes to investing in the stock market.
Let me begin by saying that while times change, people do not. This statement is important to understand because the stock market is a reflection of human emotion that operates on fear and greed. Therefore, the fundamentals of sound investing and trading have not changed.
What has changed is the amount and speed of information that we receive about the stock market. Now, more than ever, we are bombarded with information pretty much every second of the day. However, despite having more information, we are still reacting the same way we always have, we are just reacting faster, which is why it feels like things have changed.
So to help you manage yourself in this new environment, I have provided my 5 tips below.
- Know your why – When it comes to trading the stock market most people tell me they are investing to make money, but it is what this extra money can do for you and how it will change your life that is your why. Once you understand this, then “what you do” and “how you do it” becomes easier. When you have goals and you focus, you become less distracted. Too much information and more choice leads to overwhelm and confusion just like a child in a lolly shop. But when you are focussed, you will ignore what is not relevant and, in turn, make your life and your decisions simpler and easier.
- Follow sound principles – The fundamentals of good investing don’t change and following the herd is not, and never will be, part of a sound investment strategy. While you may make money a few times, as some investors did with Gamestop in the US recently or when stocks rise strongly from time to time, the law of averages suggests that if an investor continues to follow the herd long enough, their gains will be lost.
- Buy quality over quantity – An investor who continually selects good quality stocks instead of the next hot tip or internet sensation has a vastly higher chance of achieving two things. Firstly, they will build a sizable portfolio over time and secondly, they will achieve this much faster than those who choose to speculate.
- Never invest in something you do not know or understand – As a professional, I receive many different investments opportunities but when analysing these investments my first question is not about how much money I will make, it is about how much risk I am willing to take. Investing in something you do not understand increases your risk significantly and generally leads to emotionally charged decisions, which is never a good thing.
- Get an education – Lastly but not least importantly, if you want to invest in the market, make sure you know and understand how to trade the trends. Too many individuals invest only to find it is not what they thought or they are unable to manage their emotions because they lack the knowledge and experience about what is unfolding in the market. It is far better to get a quality education than it is lose your money to the market. Remember, your education will cost you one way or another but this in this new COVID environment, the right education will ensure you make more than you lose.
Before I finish up, there is one more point I would like to share. While we are bombarded with information from an increasing number of sources, it is important to understand that when it comes to investing, less is more. So be very selective as to where you get your information from – it may pay to only rely on two or three quality sources. Above all, do not assume information is education and do not make the mistake that having some knowledge means you understand how to trade or how the market works.
Today, more than ever, investors mistakenly believe that simply because they have more information at their fingertips they are better equipped to invest. However, not all information is good information and sadly, in this environment, you cannot always rely on the information you hear and see. So be selective.
For now, good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also author of the award winning book Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in all good book stores and online at www.wealthwithin.com.au