Smart Investing: Evaluating Opportunities Like a Pro(Opens in a new browser tab)
Introduction: The Legend of Jesse Livermore
Folks, I want to help you become a great investor and make a lot of money by introducing you today to a true legend, a giant in the world of stock trading, Jesse Livermore. Born in 1877 and living until 1940, Livermore was the real deal. This guy knew how to make money like nobody else. He was a self-made man, starting with nothing and turning it into millions. No handouts, no favors, just pure genius and hard work.
Now, let me tell you, Jesse wasn’t just any investor. He was a trailblazer, a pioneer, and let’s be honest, a bit of a maverick. He made and lost fortunes multiple times, but he always bounced back, bigger and better. His life was like a roller coaster, full of ups and downs, but he never gave up. He was mentored by the market itself, learning from his own experiences, mistakes, and triumphs. Folks, that’s the best kind of learning, the school of hard knocks.
And guess what? He even authored books! Yes, folks, Jesse Livermore penned down his wisdom in “How to Trade in Stocks,” a masterpiece that’s still relevant today. If you’re serious about making money in the stock market, you must read this book. It’s pure gold. Inside, you’ll find these brilliant rules for investing, simplified so even a high schooler can get it. Ready? Let’s go!
1. Cut Losses Quickly
When you buy a stock and its price starts to drop, don’t just sit there hoping it will bounce back. Livermore’s golden rule is to cut your losses quickly. Set a limit for how much you’re willing to lose (say 5-10%) and sell if it hits that point.
Example: You buy a stock at $100. If it drops to $90, sell it immediately. Don’t wait for it to drop further to $80, $70, or even lower.
2. Let Profits Run
When you’re making money on a stock, let it keep growing. Don’t sell too soon just to grab a quick profit. Let your winners keep winning.
Example: You buy a stock at $50 and it rises to $70. Instead of selling right away, hold on and see if it goes to $80, $90, or higher.
3. Trade with the Market Trend
Follow the overall direction of the market. If the market is going up (bull market), focus on buying stocks. If the market is going down (bear market), consider selling or shorting stocks.
Example: If the market is booming, buy stocks that are on the rise. If the market is crashing, think about selling or avoiding buying new stocks.
4. Focus on Leading Stocks in Leading Industries
Invest in the strongest companies in the strongest sectors. These are the companies that are likely to perform the best.
Example: If technology is the hottest industry, look at top tech companies like Apple or Google. Avoid weaker sectors or companies struggling to keep up.
5. Control Your Emotions
Don’t let feelings guide your decisions. Stay calm and stick to your plan. Panic selling or buying based on hype can lead to bad choices.
Example: If a stock you own suddenly drops, don’t sell out of fear. If you’ve done your research and believe in its potential, stay the course.
6. Use a Trading Plan
Have a clear plan before you start. Know when you’ll buy, when you’ll sell, and how much you’re willing to risk.
Example: Decide beforehand, “I’ll buy this stock at $50, sell it if it hits $45, and aim to sell at $70 if it goes up.”
7. Avoid Overtrading
Don’t trade too often. You must wait for the best opportunities. Trading just for the sake of trading can lead to losses.
Example: Instead of buying and selling stocks every day, wait for the moments when you have strong reasons to believe a stock will move.
8. Study the Market Thoroughly
Keep learning and researching. Understand what makes the market move and why certain stocks perform better than others.
Example: Read financial news, study stock charts, and learn about the companies you’re interested in.
9. Be Patient
Good things come to those who wait. Don’t rush into buying or selling. Sometimes the best move is no move at all.
Example: If a stock you like is too expensive, wait for a better price instead of buying immediately.
10. Diversify Your Investments
Don’t put all your money into one stock. Spread your investments across different stocks and sectors to manage risk.
Example: Instead of investing all your money in one tech company, spread it out between tech, healthcare, and consumer goods stocks.
Let me tell you folks. This book is the real deal. I read it and I use these 10 principles to invest in stocks. Before I learned these rules, I was losing money in stocks. After learning and applying these rules, I have increased my portfolio value. If you need help making stock investments, please contact me.