I bought my first stock in 2006 and since that time, I’ve bought and sold hundreds of thousands of stocks. I’ve made huge profits and I’ve made huge losses. When I started out in 2006, I didn’t know a lot but as the years have gone by I’ve discovered many things (actually 6 major things or laws) I wished I knew back then. If I could go back in time and talk to my younger self, these are the 6 advices I would share with him.

P.S: As you go about creating an active income for yourself by getting a job, taking courses and certifications to qualify for a better job, running your own business etc., it is equally important that you know how to invest your money and let it grow at a rate far better than you will get by simply putting your money in the bank. Trust me when I say this, a situation or emergency will arise when you least expect it that will demand a lot of money from you and it’s the monies that you’ve put aside for investments that will bail you out. And when that day comes you will regret it if you’ve not built up your investments over time.

1. Don’t trust the Financial Industry

Some of the worst investment recommendations that I’ve received have come from professional stock brokers, financial analysts, bankers and insurance brokers. It’s not that they deliberately set out to give you wrong advice, but you represent two different things to them that are at cross-purposes to each other that they can’t help but give you bad investment advice. Let me explain.

One, you are their client which means they have to act and give you advice that is in your best interest. That is what professionals do for their clients. Think doctors, lawyers, counsellors etc.

At the same time, you are also their customer, which means that they make money from you when you use their services i.e. they get a commission from any transaction you make with them. As a customer to them, they give you advice that is in their own best interest because they are making money from you.

If you were purely a client to them, they would give you advice that was 100% in your best interest. But because you are also a customer to them, some of their recommendation and advice is aimed at making money of you. The average human being will act in his or her own best interest so you can easily tell which sort of advice or recommendation you’ll get from the financial industry most of the time. It is this selfish handicap that makes them give you more customer advice than client advice and recommendation.

2. Increase your knowledge

If you can’t 100% trust the advice and recommendation from the financial industry because of the conflict of interest explained above, then what can you do? Nobody will look out for your best interest better than yourself so the responsibility is on you to differentiate between sound investment advice and a bad one. In order to do this, you must improve your knowledge on financial matters. To do this you must read good books and take courses that will educate you on investment matters.

3. Don’t do what the crowd does

Doing what everybody does will give you the same results that everybody has. And the last time I checked, not everybody was on the Forbes list of successful and wealthy people. Going with the crowd when it comes to investment matters isn’t always a good idea. The insight required to make good investment decisions isn’t something that most people are willing and committed to do because it is hard mental work…and you know how most people prefer doing something quick and easy, like watching T.V, than something slow and hard, like reading dozens of companies’ financial annual reports. Therefore, most people will make shallow investment decisions because they aren’t prepared to put in the research required to make good investment decisions. Never follow the crowd, only put your money into an investment that you’ve analysed thoroughly.

4. Avoid what you don’t understand

Only invest in what you understand. If you don’t understand any investment or deal, stay away from it. There’s no gambling in investment. The people who succeed with their money are the ones who make informed decisions backed by facts and figures. For example, for years I stayed away from trading Forex because I never understood it. Stock, bonds, and Treasury bills I understood but Forex was complex to me. I stayed away from Forex despite the fact that many of my friends were into it. It’s only recently that I began to really understand the dynamics of Forex and started dabbling into it. Meanwhile, all of my friends who used to trade Forex have all stopped trading it because they weren’t fully grounded in the technicalities and the emotional aspect of trading Forex.

5. Always buy at the right price

The price at which you buy an investment will determine whether it will be a profit or loss for you. I never used to seriously consider my buying or entry price when I started buying stocks because I always assumed the prices will go up. After a while of doing this, I realized that my profits were being limited most times because I bought at high prices. Whatever investment you decide to go into (stocks, currency, real estate etc.) you must buy into it at the right price—when it is cheapest. Doing this gives you a greater chance of making a profit from it.

6. Know the right time to sell

Equally as important as knowing when to buy, you must know when to sell. No matter how good a deal or investment is you must know when the time has come for you to sell it. Holding on to a good investment for too long can turn it into a bad investment if you don’t sell it off at the right time. I’ve made this mistake several times as well. I bought a stock, it rises very high in price (it gets to its peak) but I refuse to sell it. Then it begins to fall back to a very low price and stays very low for months and years. By refusing to sell when its price was high, I missed out on making very huge profits. This is what I do now: buy when prices are very low, sell when prices are high and use the money from the sales to buy the same stocks again when the price become low again.

These are the 6 things I wished I knew back when I started investing in stocks and I hope you can learn from my mistakes and become a better investor as you invest your own money