Prof. Tyler yamazaki

Chapter 5
Think Like a Geek
The use of strategies alone is not enough. In order to further increase your
chances of making a profit, you also need to observe the best practices
followed by successful stock investors.
Sufficient Research
It is not surprising why so many people lose their money when they invest
in stocks. Although books on the subject always emphasize the importance
of doing research, only a few are able to research properly. Unfortunately,
many investors think that simply because they have researched the market
for two straight hours, then it would be enough foundation to come up with
a sound investment decision. This is wrong. Make sure that you conduct a
sufficient research. If you are serious about being a successful investor, then
research should be a natural part of your day-to-day life.
Start Small
It does not matter how much money you have in your account that you can
use for investing. When you are a beginner, you should always start small.
In fact, it is recommended that you first use a demo account, so that you can
test the water without risking any money. This will also give you a chance
to learn how to properly navigate your broker’s platform.
Always start small. Your objective is to familiarize yourself with the actual
practice of buying and selling stocks, as well as to develop a winning
strategy. Do not worry, once you have a reliable strategy in place, you can
always increase the amount of your investment, which will also increase
your potential profit.
 
Diversification

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Diversifying your investment is one of the best ways to minimize your
losses. As they say, you should not put all your eggs in one basket. The
reason is that no matter how much you study the stock market, it can only
increase our chances of success. But, it can never guarantee the return of
positive profit. In fact, there is a possibility that you may even lose your
investment. Investing in stocks has its risks, just like any other profitable
investment opportunity. By diversifying your investment, you can lower
your risk and minimize your losses.
There are different ways to diversify. The most common way is simply to
purchase stocks from different companies and not place all your money in a
single company. Another way is to diversify by industry. Industries rise, and
fall and such is outside of your control. An industry that is well and
blooming today may no longer be considered a profitable investment by
tomorrow. Therefore, scatter your investment over different industries.
Asset class diversification is another way to diversify. You do this by
investing in the different asset class, such as in bonds, stocks, commodities,
and others. When you apply this strategy, you should learn how to time it
well. For example, in case of an economic recovery, stocks may be your
best asset to invest in. However, in case of recession, investing in bonds
could be a better option than investing in stocks. Strategy diversification is
another effective way to cut down your risk. Depending on where you want
to invest or how you want to invest (short term or long term), certain
strategies may be more applicable than others. For example, in case of a
long-term investment, you simply cannot neglect the use of financial
analysis. In the case of a short-term investment, technical analysis may be
one of the best strategies that you can use. You might also like to use
geographic diversification. Many investors are quite biased and only invest
in companies that are located in a particular territory. Take note that there is
no industry in a specific geographical location can outperform others
continuously. Ups and downs are normal in the stock market. You can also
diversify as to time. Take note that you do not need to invest all the money
in your account in one day. You can scatter your investments over time. For
example, you can invest 20% of your money today and then follow it up
with a 30% next month. Just like anything in business, proper timing is
essential to success.

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Diversifying simply means spreading your investment and not placing it in
a single basket. Take note that diversifying alone is not a key to profit. One
important part of diversifying is choosing where to diversify and place your
money. Therefore, you cannot sacrifice the importance of doing research
and analysis.