Traditional full-service stockbrokers do more than assist with the buying and selling of stocks or bonds. They often offer a wide array of services and products, including financial and retirement planning, investing and tax advice and regular portfolio updates. But they can charge substantial fees and transaction costs that can erode long-term investment gains.
Plug Power is an excellent example of the volatility investors may experience when they buy stocks beneath $5 – in the early months of 2020, shares of Plug Power rocketed up over 80%, only to suffer 50% losses shortly thereafter. While speculators may have enjoyed the pop and drop, true investors would be wise to buy and hold Plug, which makes hydrogen fuel cells for commercial vehicles. Plug’s fuel cell shipments have increased dramatically over the last two years, and the company recently announced a partnership that will usher the world’s first fuel cell-powered, zero-emission commercial trucks onto the road. This opens Plug to new business opportunities as companies around the world turn toward clean energy solutions.
It came out of the Great Recession, however, and that’s how bulls and bears tend to go: Bull markets are followed by bear markets, and vice versa, with both often signaling the start of larger economic patterns. In other words, a bull market typically means investors are confident, which indicates economic growth. A bear market shows investors are pulling back, indicating the economy may do so as well.
When you buy a stock, you should have a good reason for doing so and an expectation of what the price will do if the reason is valid. At the same time, you should establish the point at which you will liquidate your holdings, especially if your reason is proven invalid or if the stock doesn’t react as expected when your expectation has been met. In other words, have an exit strategy before you buy the security and execute that strategy unemotionally.
At the same time, there are literally hundreds of thousands of individuals who buy and sell corporate securities on one of the regulated stock exchanges or the NASDAQ regularly and are successful. A profitable outcome is not the result of luck, but the application of a few simple principles derived from the experiences of millions of investors over countless stock market cycles.
Buy “the basket”: Can’t decide which of the companies in a particular industry will be the long-term winner? Buy ’em all! Buying a basket of stocks takes the pressure off picking “the one.” Having a stake in all the players that pass muster in your analysis means you won’t miss out if one takes off, and you can use gains from that winner to offset any losses. This strategy will also help you identify which company is “the one” so you can double down on your position if desired.