Golden Rules for Learning How to Invest in Stocks - 10 Secrets That Professional Investors Never Ignore

Starting the journey to learn how to invest in stocks is not an easy task. Besides mastering theory, successful investors always need to stay updated on market information and learn from pioneers in the field. Based on valuable lessons from practical trading, this article summarizes 10 important principles that anyone who wants to succeed in stocks must understand clearly.

1. Building a Foundation: Choosing the Right Investment Method

Before entering the market, you need to decide an important thing: will you be a short-term or long-term investor?

Short-term investing relies on technical analysis, day trading aiming to capitalize on short-term price fluctuations. This method requires you to monitor price charts continuously and master strategies based on news, chart patterns, and derivatives tools.

Long-term investing focuses on fundamental analysis of companies, selecting quality stocks to hold for many years. This approach does not require daily market monitoring, only patience to wait.

Each method has its strengths but also involves different risks. Short-term investors face higher risks but have opportunities for quick profits. Long-term investors will have more stable returns, suitable for those with lower risk tolerance.

The key is that once you choose your path, follow that strategy consistently. Don’t let emotions influence your decisions or constantly change plans.

2. Minimize Risks Through Diversification

One of the golden lessons that experienced investors always remind is: never put all your money into one basket.

Diversifying your portfolio is not just advice; it’s an unwritten rule in the investment world. Warren Buffett—the greatest investor of the century—always keeps this principle in mind. During market downturns, a diversified portfolio will decline less than holding just a few stocks.

You can diversify by:

• Buying stocks from various industries
• Combining stocks, cryptocurrencies, forex
• Investing in stock indices like (S&P 500, VN30) instead of individual stocks

Market indices are excellent tools for diversification. They are built from dozens or hundreds of stocks, helping to reduce the impact of a poor-performing company on your portfolio. Although they may not generate high profits during bull markets, they still offer much higher returns than bonds or bank deposits.

3. The Art of Choosing Quality Stocks

If you choose the long-term investment route, selecting the right stocks is a crucial factor. Not all stocks are worth holding long-term.

Characteristics of a good stock:

• Stable financial health: The company should have a short-term asset to short-term debt ratio of around 1.5 or higher, indicating good liquidity.
• Sustainable growth: Revenue and profit must have grown steadily over at least the past 5 years (excluding general economic downturns).
• High profitability: Indicators like profit margin, ROE, ROA should increase annually.
• Clear dividend strategy: The company pays regular dividends to shareholders.
• Reliable management: The leadership has no history of deception or hiding information.

Looking at history, Vietnamese companies with the strongest stock growth over 10 years like Vicostone, Vingroup, Vinamilk, Hòa Phát, Bình Minh Plastic… are large organizations with significant market share and leadership recognized repeatedly.

Good companies often do not generate spectacular profits when the market is hot, but they are ideal defensive assets during recessions. That’s why adding quality stocks to your portfolio is a favored strategy among seasoned investors.

4. Flexibly Adjust Strategies According to Market Conditions

Even long-term investors need to be proactive in adjusting their portfolios according to economic phases.

Real example: During a pandemic, central banks loosen monetary policy and cut interest rates to stimulate consumption. Borrowing becomes cheaper, leading to increased demand for housing and a surge in real estate stock prices. However, when the government fears housing prices rising too fast, they may decide to tighten real estate lending policies. Immediately, demand drops and stock prices turn downward.

A wise investor will recognize these signals early and reduce the proportion of real estate stocks before it’s too late.

Warren Buffett is famous for his long-term investment style, but if you follow Berkshire’s portfolio, you’ll see the weight of each stock changes continuously in each reporting period. This proves that success is not just about holding long, but holding with appropriate proportions for the current phase.

5. Risk Management: The Fortress Protecting Your Assets

For short-term traders, risk management is survival. A big mistake can wipe out profits from dozens of previous trades.

Basic protective tools:

• Sell Stop Order (Sell Stop): You set a price level; when the stock falls to that level, the order automatically sells all your position to limit losses.
• Buy Stop Order (Buy Stop): When you want to buy a stock at a certain price in the future, this order automatically executes when the price reaches that level.

An effective strategy is to set a stop-loss 10% to 15% below the entry price. This ensures your losses stay within tolerable limits.

6. Determining Optimal Buy/Sell Points Through Technical Analysis

To find the best entry points, professional investors use technical indicators.

Two most popular indicators:

Relative Strength Index (RSI): Measures overbought or oversold levels of a stock. When RSI is below 30, the stock is heavily sold and may be a buying opportunity. When RSI is above 70, the stock is overbought and may be nearing a peak.

Stochastic Oscillator (Stochastic): Determines the strength of the price trend. When the indicator is above 80, the stock is overbought and may reverse. When below 20, the stock is oversold and likely to rebound.

Not everyone has deep technical analysis skills. If you’re a beginner, learn gradually or seek advice from analysis experts.

7. The Art of “Riding the Wave” - Finding Market Bottoms

Catching the market bottom is the fastest way to maximize profits. However, it’s also one of the most difficult skills.

Signs that a bottom is near:

• Stock prices form new lower lows, but momentum indicators (RSI, Stochastic) start rising. This shows selling pressure is weakening.
• Subsequent lows are higher than previous lows, even though prices overall still decline. This indicates selling pressure is easing.
• Sudden large trading volume during sharp declines. This often signals smart investors are bottom-fishing.

If you catch the bottom, profits can be enormous. But remember: catching falling knives is very risky. Only use a small portion of your capital for this purpose. Never bet all your assets on this game. Also, avoid bottom-fishing in penny stocks or stocks trading below par, as they can crash very deeply.

8. Knowing When to Stop: The Golden Rule of Borrowed Capital

The biggest mistake many investors make is borrowing money to trade.

Simple rule: Only invest with money you can lose without affecting your life. You can lose your entire initial capital—that’s the reality of the stock market. If you’re not willing to accept this, you’re not ready to invest.

Regarding Margin (Vay Ký Quỹ):

Margin is different from regular debt. It’s a tool that allows you to amplify your returns. For example, with 1:20 margin, you only need $100 to control a position worth $2,000. If you incur losses, your loss is limited to your initial capital and you don’t owe more. But if you win, your profits are also amplified 20 times.

Margin is a powerful tool but also dangerous if misused.

9. Continuous Practice: The Only Key to Success

Warren Buffett famously said: “The first rule of investing is never lose money. The second rule is never forget the first.”

To achieve this, you must keep learning. Read financial reports, analyze companies, monitor the market—all part of the learning journey.

The best way to learn is through practice. There’s no other way. You need to trade, make mistakes, learn from them, and improve. Every trade—profit or loss—is a valuable lesson.

Start small, with a modest portfolio, and gradually build your experience. There’s no shortcut, only perseverance.

10. Psychology: The Foundation of All Successful Decisions

Finally, and most importantly: psychology.

The stock market is not just numbers and charts. It’s also a conflict between greed and fear. A position that’s making big profits can turn into a loss in a few days. A quick decision driven by panic can wipe out months of accumulated gains.

Maintain a stable mindset:

• Don’t panic and sell too quickly. Analyze the reasons behind the decline before acting.
• Don’t be greedy and hold back profits. Know when to take gains.
• Don’t trade based on emotions. Wait until you’re calm and able to make rational decisions.

Conclusion

Learning how to invest in stocks is not a quick process. It requires patience, discipline, and mental resilience. These rules are not magic formulas—they are lessons from the world’s most successful investors.

Start applying each principle today, and you will find your own path in the stock market. Success is not impossible, as long as you’re willing to learn and persevere.