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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
Diversifying your investment is one of the best ways to minimize your losses. As

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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.
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

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analysis.