Lessons learned from Investing during a Recession

“Do not brood over your past mistakes and failures as this will only fill your mind with grief, regret and depression. Do not repeat them in the future.” ~Swami Sivananda

With the stock market at unprecedented lows, it gets more appealing every day to invest into the stock market.  There is always the underlying fear of whether or not I will immediately lose more money (that I have already lost) from investing.  After reviewing so many outlooks from different "experts" and "analysts", the general consensus is that it is a great time to buy stock.

Well, is it really a good time to invest?  Well, the stock market is roughly 50% of the level it was at during its peak.  Also, it seems that a lot of bad news has been dispersed over the course of the year, which means good news has to be around the corner right?  Unfortunately, I could not find out what was going to happen tomorrow after looking into my magic crystal ball.  After all, if I was able to do so, my NCAA bracket would be in a lot better shape than it is right now.  

So what is the secret to excelling in the stock market?  Any person who has read an investment book or have watched a financial channels knows that the secret to investing in the stock market is to "buy low and sell high".  Although that is easy to say, what does that really mean?  What do you consider a low price for a stock?  How much money do you consider to be "high"?

I think that a lot of people realized from the previous years that it is really easy to lose money in the stock market.  Especially with new investors, who invested in the peak of the stock market, we are really discouraged about how quickly money disappeared.  However, most seasoned stock investors realize that there are many opportunities to invest wisely and make some money in the process.

Although I have not officially studied investing or received any formal training on the subject, I have learned some lessons from the previous market.  Below are some of the lessons learned:

1. Buy Low
• Although this may seem like an obvious point, it is surprising how hard it is to actually buy a stock at a low point.
• From my personal experience, one usually buys a stock on the way down, however, it is after the initial dip from a previous high which may not be the lowest point of the stock.
• Reviewing the stock's 52-week low and even daily low is helpful when determining a "low" price to purchase a stock.
2. Sell High
• Once again, another obvious point that many cannot seem to get right
• One would like to sell a stock for a profit over the price that was originally paid, however most hold on to a stock trying to break even from the original stock price plus the commission for the buy.
• Very rarely does a stock give you a massive return in a short time, however over time, the potential for that stock to give you those types of returns are possible.
3. Stock prices are based on emotions, not always on facts
• Unfortunately, the average stock investor is typically "along for the ride".
• There are many big time investors (investment bankers, hedge funds, mutual funds, etc) that sway the price of a stock.  The average consumer does not really affect the price of the stock by buying and selling.
• Just because a stock has good news, does not necessarily mean that it will go up.  The same goes for the converse of that, bad news does not necessarily mean that the stock price will go down.
4. It is impossible to time the lowest price of a stock
• Timing a stock is almost near impossible.  It is a better idea to purchase a stock at a price that you are comfortable with.  Honestly, when a stock is being purchased, it is literally buying a piece of paper that you are assigning a value to.
5. Do not watch your stock everyday
• Watching a stock everyday will cause you to be stressed out.
• It is best to set a limit or a stop limit order to purchase a or sell a stock.

I know these points are not necessarily the most profound and can even seem like common sense, however it took me a year of investing and losing a lot of money to fully understand these principles.  Hopefully, this will help you to understand the market a little better and will prevent you from making some of the same mistakes I have made.

If you have any other life lessons you would like to share about investing, please leave them in the comments below.  Stay Disciplined!