Basic Stock Investment Guide - 10 Principles Every Trader Must Know

Are you a newcomer stepping into the world of stock investing and looking to improve your trading skills? To learn basic stock investing effectively, merely understanding theory is not enough. Traders need to constantly update market information and learn from experienced investors. Based on practical lessons, I have summarized 10 essential principles that anyone aiming for success in securities must understand clearly.

1. Choose an investment method suitable for yourself

First, you need to clearly define your investment goals. The stock market offers two main approaches:

Short-term investing: Applying buy-sell strategies within the day, based on technical analysis to identify entry/exit points. This method requires continuous market monitoring, high risk tolerance, and the use of leverage to increase profits.

Long-term investing: Applying buy-and-hold strategies based on fundamental analysis. This approach requires less daily monitoring but demands deep knowledge of the industry, company, and financial statement analysis.

Each method has its own strategy. Once you determine your direction, stick to the strategy strictly to avoid emotional decision-making that can lead to mistakes.

2. Diversify your portfolio to minimize risk

This is the golden rule most experienced investors recommend. Even Warren Buffett advocates this approach throughout his career.

Diversification is not just buying many different stocks but also investing across various sectors and even different asset classes. When the market fluctuates, a diversified portfolio is less affected compared to holding a single stock.

For example, market indices like S&P 500 or VN30 are diversified portfolios. During bear markets, these indices tend to decline less than individual stocks.

3. Selecting quality stocks is a decisive factor

If you choose the long-term investment path, selecting good stocks will determine your success. You need to research financial reports, development strategies, and the outlook of the company’s products/services.

Signs of quality stocks:

• Low debt, good liquidity (short-term assets/short-term liabilities ratio over 1.5)
• Revenue and profit growth consistently over the past 5 years
• Profitability indicators (profit margin, ROE, ROA) continuously improving
• Maintaining regular dividend policies
• Leadership with credibility, no history of violations or concealment of information

Many large Vietnamese companies like Vicostone, Vingroup, Vinamilk, Hòa Phát have demonstrated the strength of this strategy over the past 10 years. These companies often do not generate hot profits during market excitement but are safe choices when the market turns downward.

4. Adjust your portfolio according to market trends

Investing is not a static process. Over time, social needs change and the market also evolves. Even long-term investors need to periodically review portfolio performance and adjust weights.

Take COVID-19 as an example: When the pandemic broke out, central banks loosened monetary policy, lowering interest rates to stimulate demand. This made borrowing easier, causing a surge in real estate demand, which boosted real estate stocks.

However, in early 2022, policies changed to curb soaring housing prices. This shift reduced demand, weakened profit expectations for real estate companies, and caused sector stock prices to decline.

A true investor is someone who can flexibly change portfolio weights to align with economic trends. Warren Buffett is famous for long-term investing, but if you observe, the proportion of stocks in Berkshire’s portfolio constantly changes.

5. Risk control is the top priority

Especially for short-term traders, risk management is the key to survival and growth.

Using stop-loss orders can effectively protect your assets. Specifically:

• Sell Stop order (: Sell stocks when the price drops to a preset level
• Buy Stop order ): Buy stocks when the price exceeds a preset level

A smart tactic is to set stop-loss points at 10-15% below your entry price. This helps manage sudden shocks while keeping losses within tolerable limits.

6. Determine optimal buy/sell timing using technical analysis

Experienced traders use technical analysis to find ideal entry/exit points. The two most popular indicators are:

Relative Strength Index (RSI): Measures stock volatility. RSI < 30 indicates oversold conditions (potential buy), while RSI > 70 suggests the stock is near a peak (consider selling).

Stochastic Oscillator (Stochastic): Helps identify reversal signals. When above 80, stocks are overbought and may decline. When below 20, stocks are oversold and may rebound.

Understanding how to use these indicators will help you make more accurate trading decisions.

7. Bottom-fishing strategy - High profit potential but high risk

Catching the bottom of stocks can generate extraordinary profits if successful. Signs indicating a bottom is forming include:

• Stock prices continuously making new lows but momentum indicators (RSI, Stochastic) start rising — indicating weakening downward momentum
• Each new low is higher than the previous one — selling pressure is decreasing
• Large trading volume during declines — signs of investors returning to bottom-fish

However, catching falling knives is dangerous. Use only a small portion of your capital for this strategy, and avoid risking all assets. Steer clear of bottom-fishing in speculative stocks or those trading below par value, as they tend to fall further.

8. Avoid borrowing — Play with capital you can afford to lose

Do not borrow money to invest. Only use reserve funds or savings that, even if lost, do not affect your long-term life. Borrowing to invest is very risky, especially from lenders with exorbitant interest rates.

If you want to amplify profits, using margin (leverage) can be a smarter choice. With margin, a small capital can control a large position. In the worst case, you only lose your initial capital, not incur debt.

9. Continuous practice — The only path to skill

One of Warren Buffett’s valuable lessons is: never lose money in trading. To do this, you must constantly learn, analyze, and practice trading to understand both theory and market reality.

The most effective way is to start with demo trades, accumulate knowledge through each analysis. Begin with small decisions, then gradually expand as your skills improve.

10. Steady mindset — The final decisive factor

One of the most important factors for success in basic stock investing is maintaining a stable mindset. The stock market is highly volatile; a large profit position can turn into a loss in just a few days.

When facing unusual fluctuations, analyze the causes logically rather than being driven by fear. Do not cut losses out of panic — emotional actions often lead to regret later.

Conclusion

Learning basic stock investing requires patience, discipline, and calmness. The principles above are not guaranteed profit formulas but are refined from the experience of many generations of investors. Applying them wisely, combined with continuous learning, will help you build a solid foundation for your long-term investment journey.