Stock Investment Guide for Beginners - 10 Basic Principles

Are you just starting to enter the stock trading world but don’t know where to begin? Besides mastering theory, successful investors always stay updated with market news and learn from experienced predecessors. Here are 10 fundamental principles that every investor needs to understand to optimize their strategy.

1. Identify a trading style that suits you

Before starting, you need to choose a clear trading style:

Long-term investing: Use buy-and-hold strategies, select stocks based on fundamental analysis, focus on the company’s growth potential over the next 5-10 years.

Short-term investing: Apply day trading, use technical analysis to identify buy/sell points, continuously monitor market news.

Each style requires different strategies:

Once you’ve identified your style, stick to your strategy with discipline to avoid impulsive buy/sell decisions driven by emotions.

2. Optimize your portfolio through diversification

This is an unchanging principle that experienced investors, from Warren Buffett to large funds, follow. Diversification helps minimize losses when sudden risks occur.

Diversification can be achieved by:

• Holding multiple stocks across different sectors
• Combining various asset classes: stocks, bonds, cryptocurrencies, forex
• Investing in market indices (S&P 500, VN30) instead of only individual stocks

Benefits of diversification: When the stock market declines, diversified indices tend to fall less than individual stocks. Warren Buffett has advised that for long-term investors, index investing is a simple yet effective approach. Although in a bullish market, this strategy may not outperform specific stocks, long-term yields still surpass bonds or savings accounts.

3. Choose high-quality stocks as a foundation

If you pursue long-term investing, selecting good stocks is a crucial decision. Carefully read financial reports, understand growth strategies, and evaluate product potential in the market.

Characteristics of quality stocks:

• Healthy financials: Current ratio (Current assets / Short-term liabilities) over 1.5 indicates good liquidity
• Stable growth: Revenue and profit have increased consistently over the past 5 years (excluding major crises like COVID-19)
• High profitability ratios: Increasing profit margins, ROE, ROA annually show effective management
• Dividend policy: Regular dividend payments signal reliability
• Trustworthy leadership: Leaders with clean records, no legal issues or deception

Top companies in Vietnam like Vicostone, Vingroup, Vinamilk, Hòa Phát are prime examples—strong leadership and sustainable business structures. Quality stocks often do not yield high returns during market booms but serve as good “defensive assets” when the market turns downward.

4. Adjust your portfolio based on market dynamics

Markets constantly change according to policies and economic needs. Even long-term investors need to periodically review and adjust their portfolio weights.

Real-world example: During COVID-19, central banks loosened monetary policy and cut interest rates, making borrowing cheaper. Real estate demand surged, pushing up stock prices in that sector. However, in early 2022, as banks tightened lending policies, demand waned, causing sector stock prices to plummet.

Smart investors know how to flexibly adjust their weights to align with currency trends and new policies. Warren Buffett, though famous for long-term holding, often adjusts Berkshire’s portfolio regularly in each reporting period.

5. Risk control is the top priority

Especially for high-risk short-term trading, risk management is vital.

Risk control tools:

• Stop-loss orders (Sell Stop): Automatically sell stocks when price hits a preset level, helping you cut losses promptly
• Stop-buy orders (Buy Stop): Automatically buy when price reaches a set level, useful for entering at favorable prices

Golden rule: Set stop-loss points 10-15% below the opening price. This ensures you manage losses within acceptable limits.

6. Determine optimal entry/exit points with technical analysis

To accurately catch buy/sell timing, investors use technical indicators.

Two common indicators:

RSI (Relative Strength Index): Measures overbought/oversold levels:

• RSI < 30: Stock is oversold, potentially a good buy point
• RSI > 70: Stock is near peak, risky to buy now

Stochastic (Stochastic Oscillator): Identifies reversal signals:

• Above 80: Overbought, potential downward reversal
• Below 20: Oversold, potential rebound

Combining these indicators helps you identify entry/exit points with higher accuracy.

7. Bottom-fishing strategy - High profits but high risk

Catching the bottom of stocks when prices fall sharply can yield extraordinary gains. However, this is a risky tactic that requires disciplined use.

Signs of an upcoming bottom:

• Prices form new lows but momentum indicators (RSI, Stochastic) rise — weakening downward momentum
• Prices start forming higher lows compared to previous lows — selling pressure is easing
• Large trading volume appears during declines — investors are returning to buy the dip

Important note: Invest only a small portion of assets to test bottom-fishing; never invest all your capital in this game. Avoid bottom-fishing in speculative stocks or those trading below par value—these can fall very deep.

8. Financial management — Never borrow to invest

Financial discipline is the framework that protects your assets:

• Only invest idle cash: Use money that, if lost, won’t affect your long-term life
• Avoid borrowing: Borrowing to invest is very risky, especially with scam lending apps charging exorbitant interest (1000% per month)
• Use leverage wisely: Margin can amplify profits but also losses. For example, with 1:20 leverage, you only need to put down $100 to control $2,000 worth of assets, but maximum loss is $100 (not going negative)

9. Continuous practice — The key to mastering the market

Warren Buffett emphasizes that the number one goal is never to lose money when investing. To achieve this:

• Continuously learn from books, research, and financial reports
• Regularly practice stock analysis and trading
• Gain experience from small mistakes, not big losses
• Use demo accounts to hone skills and knowledge before real trading

Practical trading is the best way to accumulate real-world knowledge and understand market behavior.

10. Maintain emotional stability — The most overlooked skill

Markets are highly volatile; a large profit position can turn into a loss in just days. Stable psychology helps you:

• Analyze the true causes behind fluctuations before acting
• Avoid panic selling — which often leads to regret
• Follow your pre-set trading plan instead of emotional reactions
• Accept that failures are part of the learning process

Successful investors are not those who never make mistakes but those who learn from each mistake and keep a balanced mindset.

Conclusion

Stock trading requires patience, discipline, and mental resilience. There are no shortcuts or magic formulas—only continuous learning and methodical practice. Start with these basic principles, build a diversified portfolio, manage risks carefully, and remember that long-term profits are better than quick but unsustainable gains.