Six Investing Tips to Remember in Good Times and Bad

One of the most interesting aspects of transitioning from active money manager to newsletter writer is the opportunity to record your thoughts at any given moment. 

It allows you to revisit your thought process at previous points and see the insights you get at that particular moment. 

We were going through some of our old notes, and we happened upon this one that we wrote exactly THREE WEEKS before the stock market bottomed in October 2022. 

We are in the opposite type of stock market today, but—funny enough—this note is just as good for today's market as it was back then. 

We hope you enjoy this note… 

It has been a bad year for stocks... 

Yesterday, the Dow Jones Industrial Average fell 3.9%, the S&P 500 fell 4.3%, and the tech-heavy Nasdaq fell 5.2%. 

It was the worst day for the Dow and S&P since June 2020 and the worst for the Nasdaq since March 2020. 

But big sell-offs can present significant opportunities if you have a focused strategy – either tactical trading like we do here at HX Trader or long-term investing like in our sister publication, HX Legacy. 

That said, it has been challenging for the vast majority of investors. Also, since almost all investors focus overwhelmingly on long positions (as they should), practically no one has made money. 

2022 has been a year with more asset classes down year to date than almost any year on record. 

However, amid the worst market environments, I find it valuable to remember some critical basics to making real money in the stock market. 

Certain big-picture concepts can be easy to forget when facing daily volatility and the barrage of negative media coverage. 

Now, remember that these ideas are geared more toward long-term investing portfolios and differ from the tactical trading approach we employ at HX Trader. 

Given the bear market and this year's high volatility, it might not seem like the time to think about big-picture investing. But that actually makes it the best time to do so! 

This is not a comprehensive list, but here are six quick thoughts on longer-term investing and how to change your financial future... 

1. Look for Big Ideas 

At HX Research, we have a very nontraditional view of stocks. We don't see them as ownership in companies (although technically they are) but rather as "products" that investing consumers buy. 

Consumers may buy a product for utility, or they may purchase a product because they think it is cool or fashionable. 

The "utility" in the case of stocks could be dividends or – in theory – cash flow. The "fashion" could be companies doing great things and growing a ton. 

Investors like to look for big ideas where they could see a lot of growth. 

So, don't look for slow growth or mature markets. Utilities would be an example... They can be great businesses but will never change your investing future. 

Look for big ideas – think e-commerce titan NSDAQ: Amazon (AMZN) – that could see colossal cash flow growth and where the stock can be a "product" that will excite investors. 

Think big! 

2. Look for Big Earnings Growth 

While there is no technical relationship, stock prices almost always follow company earnings. Find a company that will grow earnings from $1 to $10, and you are likely to find a stock that will go up – probably a lot. It may or may not go up as much as earnings, and it may or may not go up as fast as earnings... But it is going higher! 

3. Stocks That Go Up 10x, Go Up 2x and 5x First 

The most dangerous statement to destroy great long-term returns is, "But the stock is up a lot already!" 

This shows a fundamental misunderstanding of both math and markets. 

Remember that for a stock to go up 1,000%, it must first go up 200% and 500%. 

Also, if a stock is up that much already, that's probably a good indication that the company is succeeding and that the stock market is recognizing it. 

4. You Can’t Win if You Don’t Play

The "smart-sounding" investor can always find a million reasons not to invest. The successful investor understands that you actually have to own the stock to make the money. 

Don't worry about being smart – focus on being successful. 

5. The Power of Big Math - Aim BIG

Having a single stock go up 1,000% can make up for many mistakes. 

The simplest version is a portfolio of five stocks. Imagine investing $100, with $20 in each stock. 

Imagine that four of them go down 100%. That would contribute an $80 loss to your portfolio. 

However, if the fifth one goes up 1,000%, that contributes to a $200 gain, so your portfolio would now be worth $220. 

That's a 120% return on the portfolio, a nice double-digit return across five years. 

This is an extreme example to illustrate the power of significant returns! 

6. Stay Invested

It might feel good to go to all cash when the market is volatile and going against you. 

If you have a terrible group of stocks with real liquidity and bankruptcy risk, it might also be the right thing to do! 

However, if you have picked your stocks well (with our help!), the short-term emotional gain of going to cash would be the worst mistake you can make! 

Like No. 4 above, you can only make the money if you are actually invested! 

These are all elementary ideas—they aren't rocket science—and they're also easy to forget in a horrible stock market. 

As such, write them on a Post-it note and tape it to your computer screen. In five years, when you harvest your returns, you'll thank yourself for doing so. 

Which of these ideas do YOU think is most important? Tell us more in the comments section below.