When you invest in a stock, you’re buying a piece of that company. That’s why it’s important to know all you can about it – what it does, what its growth prospects are, how much money it makes, etc.
In the past year, we’ve seen a lot of speculation around Bitcoin and marijuana stocks, both of which have seen tremendous returns.
However, investors need to only look at what has happened to the price of Bitcoin over the past six weeks to see the serious risks that are involved when speculating. Since reaching around US$19,000, Bitcoin has since plummeted to a little more than US$11,000, for a decline of around 40%.
When it comes to speculating, the price can go down just as quickly as it went up.
If you look at the fundamentals of a company and decide it is a good buy, then it’s far less likely that a sell-off will be catastrophic than if it had poor fundamentals and you just wanted to jump on the bandwagon.
Many investors look at pot stocks and are concerned that they might be missing the next big thing and that’s pushing many people into investing in high-risk companies that are heavily overvalued.
By practicing disciplined investing strategies you’ll put yourself at less risk while giving yourself a better chance for achieving strong returns over the long term. Being a disciplined investor likely won’t result in you earning returns of 200% in a span of just a few months, but it will keep your money safer.