Should You Invest in Stocks? 10 Principles to Master Before Starting Your Investment Journey

Are you unsure whether to invest in stocks or not? Should you invest your time and money into this field without fully understanding its nature? In reality, whether to invest in stocks is a personal decision, but if you choose to participate in the stock market, you must master the fundamental principles. Merely studying theory is not enough; investors need to continuously update market information and learn from the experiences of those who came before. Here are 10 principles that anyone involved in stock investing must understand.

1. Define Your Investment Direction from the Very Beginning

Deciding which direction to take in stock investing must be determined right from the start. There are two main investment philosophies:

Short-term investing: Applying trading strategies within the day or a few weeks, based on technical analysis to identify buy and sell points. Investors need to constantly monitor price charts, react quickly to market signals and economic news.

Long-term investing: Using buy-and-hold strategies, selecting companies with solid fundamentals to hold for several years or even decades. This approach requires thorough fundamental analysis of the company’s financials.

Each philosophy has different requirements in terms of knowledge, risk level, trading frequency, and return rates. Once you’ve chosen your direction, stick to that strategic discipline, avoiding impulsive decisions driven by emotions.

2. Optimize Your Portfolio Through Diversification

Most experienced investors advise diversifying your portfolio. Even Warren Buffett, one of the greatest investors in the world, always follows this principle.

Diversification means not putting all your money into a single stock but spreading it across many stocks, sectors, and even different asset classes such as stocks, cryptocurrencies, and forex. This helps minimize losses during unexpected market fluctuations.

For example, stock indices like S&P 500 or VN30 are diversified portfolios with dozens of stocks. During a market downturn, these indices tend to decline less than holding a single stock. That’s why Buffett often recommends long-term investors to invest in indices rather than individual stocks, as this approach is simple, effective, and safe.

3. Choosing Good Stocks Requires Deep Research

If pursuing long-term investment, selecting the right stocks is a crucial factor. You need to carefully read financial reports, understand the company’s development strategy, and evaluate the market potential for their products.

A good stock typically has the following characteristics:

• The company has low debt, with short-term liquidity ratios (Current Assets/Current Liabilities) above 1.5, indicating strong repayment ability
• Revenue and profit have increased continuously over the past 5 years (excluding general economic crises)
• Profitability indicators (Profit Margin, ROE, ROA) increase annually
• Regularly pays dividends to shareholders
• Leadership is reputable, with no accusations of dishonesty or hiding bad information

In fact, many leading Vietnamese companies like Vicostone, Vingroup, Vinamilk, Hòa Phát have seen strong price increases over the past 10 years because they have excellent leadership and solid business foundations. Good companies may not always deliver spectacular profits during hot markets, but they serve as excellent defensive assets when the market turns downward.

4. Flexibly Adjust Portfolio Weights According to Market Cycles

Even long-term investors should not just invest and forget. You need to periodically review the performance of each stock and adjust the weights to align with current market trends.

For example, when the COVID-19 pandemic broke out, central banks loosened monetary policies, lowering interest rates to stimulate the economy. Easy borrowing boosted real estate demand, causing real estate stocks to surge. However, in early 2022, policies tightened again, restricting real estate loans. This change led to a decline in housing demand and a reversal in real estate stock prices. Experienced investors should reduce their holdings in real estate stocks during this period.

Warren Buffett is famous for holding long-term, but if you observe Berkshire Hathaway’s portfolio, you’ll see the stock weights change continuously with each reporting period. The key skill of a good investor is not just holding at all times, but knowing how to hold with appropriate weights according to market conditions.

5. Risk Control Is the Key to Survival in Investing

Especially for short-term investors, risk control is vital. To protect your capital, use stop-loss orders (Stop Loss) and take-profit orders (Take Profit).

A stop-loss order automatically sells your stock when the price drops to a predetermined level, preventing large losses. A take-profit order automatically buys or sells when the price reaches your target.

An effective strategy is to set a stop-loss at 10-15% below your purchase price. This helps you control risk, and if losses occur, they remain within your tolerance.

6. Technical Analysis Helps Identify Optimal Buy and Sell Points

Technical indicators are popular tools for investors to determine entry and exit points.

Relative Strength Index (RSI) measures price volatility. When RSI drops below 30, the stock is oversold. When RSI exceeds 70, it’s approaching an overbought condition.

Stochastic Indicator measures trend strength. If the indicator is above 80, the market is overbought and likely to reverse downward. If below 20, the market is oversold and likely to rebound.

These indicators are not always 100% accurate, but they provide useful signals to make more informed decisions.

7. Catching the Bottom of Stocks – Big Opportunity but Also High Risk

Timing the bottom (mua vào lúc giá thấp nhất) can generate extraordinary profits. To identify a bottom, look for these signals:

• Price continuously makes new lows but momentum indicators (RSI, Stochastic) rise. This indicates selling pressure is weakening.
• Price starts forming higher lows compared to previous lows, showing selling pressure is diminishing.
• Large trading volumes appear during declines, signaling investors are returning to catch the bottom.

However, catching falling knives is very risky. Use only a small portion of your capital for this strategy, never risking all assets. Avoid catching the bottom of speculative stocks or stocks trading below par value, as these tend to fall even further.

8. Do Not Borrow Money to Invest

A common mistake for newcomers is borrowing money to trade. You should only invest with money that, even if lost entirely, does not affect your livelihood.

In Vietnam, borrowing to invest is very risky because many “black” companies exploit fake investment apps with unbelievable interest rates up to 1000% per month, then disappear with your money.

If you want to increase profitability, you can use margin (borrow from the trading platform) responsibly. For example, with 1:20 leverage, your capital can control a $2000 position. In the worst case, you only lose your initial capital without debt. In the best case, a 1% price increase yields a 20% profit.

9. Continuous Practice Is the Path to Success

Warren Buffett says that the number one rule for investors is never to lose money. To achieve this, you need to keep learning, analyzing stocks, and practicing trading until your theoretical knowledge and practical skills become second nature.

Participating in real trading is the fastest way to learn. You can start with small positions, gradually accumulating experience from wins and losses, and drawing valuable lessons for your long-term journey.

10. Stable Mindset Is the Foundation of All Success

The last but most important principle: always maintain a calm mindset. The stock market is unpredictable; a position with large gains can turn into a loss in just 1-2 days.

Stay calm, analyze the true reasons behind market fluctuations, and make rational decisions whether to hold or cut losses. Don’t let panic or fear dominate, as impulsive decisions often lead to regret later.

Conclusion: Should You Play the Stock Market?

The question “Should I invest in stocks?” has no absolute answer. But if you decide to participate, equip yourself with basic knowledge, discipline, and especially patience. Stock investing is a marathon, not a sprint. Successful investors are not necessarily the richest or smartest, but those who understand and adhere to principles, stay consistent with their strategies, and continuously learn from their mistakes.