Stock Investment Guide: 10 Core Principles Every Investor Must Master

To succeed in stock trading, you need not only to understand the theory but also to know how to apply it flexibly in practice. This requires investors to constantly update market trends, learn from successful figures, and draw valuable lessons. Below are 10 investment principles in stocks that anyone participating in the market should understand clearly.

1. Choose the appropriate investment method from the start

There are two main approaches to stock investing:

Short-term investing: Applying day trading techniques, relying on technical analysis to identify entry/exit points. This method requires continuous market monitoring, knowledge of multi-sector analysis, and high risk tolerance.

Long-term investing: A buy-and-hold strategy, selecting stocks based on fundamental analysis and the company’s financial situation. This approach requires knowledge of a specific industry, skills in reading financial reports, and lower risk tolerance.

Each method has its own strategy. Once you determine your direction, you’ll know what to learn and how to apply it. The key is to follow your chosen strategy discipline, avoiding impulsive decisions driven by emotions.

2. Diversify your portfolio - A shield to protect assets

This is one of the most important stock investment principles. Instead of concentrating all funds in one or two stocks, allocating capital across various asset classes (stocks in multiple sectors, bonds, cryptocurrencies, forex) reduces losses when risks materialize.

Major indices like S&P 500 or VN30 are typical examples of diversified portfolios. When the stock market faces difficulties, diversified portfolios tend to decline less than holding a single stock.

Experienced investors often advise newcomers to invest in stock indices because it’s a simple yet effective way to achieve long-term profits. Although during strong bull markets, diversified portfolios may not rise as fast as individual stocks, long-term returns are usually much higher than savings or bond investments.

3. How to select quality stocks to hold

For long-term investors, choosing good stocks is a decisive factor for success. Carefully read financial reports, understand the company’s development strategy, and evaluate market potential for their products.

Characteristics of good stocks:

• Low debt ratio, short-term liquidity ratio (Current assets/Short-term liabilities) ≥ 1.5
• Stable revenue and profit growth over the past 5 years
• Profitability indicators (Profit margin, ROE, ROA) increasing annually
• Regular dividend payments
• Reputable leadership with a good track record and transparent information

Large companies with stable market share and recognized leadership like Vicostone, Vinamilk, Hòa Phát have proven to be good choices. Although they may not generate super high profits during hot markets, they act as defensive assets effectively when the stock market faces difficulties.

4. Adjust portfolio weights according to market fluctuations

Even long-term investors need to regularly review portfolio performance and adjust weights to align with new market trends. The market constantly changes due to policies, economic conditions, and consumer demand.

For example, during a pandemic, central banks loosen monetary policy and cut interest rates, increasing borrowing capacity and boosting real estate purchases. This causes real estate sector stocks to surge. However, when policies shift to tighten to prevent a housing bubble, demand drops, and revenue expectations for real estate companies decline, leading to stock prices falling.

A wise investor knows how to flexibly change weights to suit these changes. Even Warren Buffett, known for long-term holding, continuously adjusts stock weights in his portfolio based on quarterly reports.

5. Risk control - The key to safe trading

Especially for short-term trading, risk control is vital. Useful tools include:

• Stop Loss orders (Stop Loss): Automatically sell stocks when the price drops to a set level, limiting losses.
• Buy Stop orders (Buy Stop): Automatically buy stocks when the price exceeds a certain level, supporting trend-following trades.
• Limit orders (Limit Order): Set maximum/minimum prices for transactions.

A common strategy is to place stop loss points 10-15% away from the opening price. This allows reasonable risk management; if losses occur, they remain within your capacity to bear.

6. Determine buy/sell timing through technical analysis

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

RSI (Relative Strength Index):

• RSI < 30: Stock is oversold, high potential for price recovery
• RSI > 70: Stock is overbought, may be about to decline

Stochastic Oscillator:

• 80: Overbought, possible correction downward

• < 20: Oversold, high chance of rebound

Less experienced traders can start by learning these basic indicators before moving on to more complex analysis.

7. Bottom-fishing techniques - Creating opportunities from fear

Successfully catching the bottom can yield huge profits. However, it’s also one of the riskiest techniques. To identify potential bottoms, pay attention to:

• Price forms a new low but momentum indicators (RSI, Stochastic) show weakening decline
• Price starts forming higher lows: Selling pressure decreases, recovery potential increases
• Large trading volume appears during declines: Sign of investors seeking opportunities

Important note: Use only a small portion of your capital for bottom-fishing, never risk all assets. Avoid bottom-fishing in speculative stocks or those trading below par value, as they can fall even further.

8. Do not borrow money to invest - Avoid becoming over-leveraged

This is a golden rule: only invest with money you can afford to lose without affecting your life. Borrowing to invest is extremely risky, especially in developing economies where many “shadow companies” offer loans with exorbitant interest rates up to thousands of percent per month.

Instead, use idle cash or savings you don’t need immediately. If you want to amplify profits, some platforms offer margin features with reasonable leverage, allowing you to control risk: if you incur losses, you only lose your initial capital, not go into debt.

9. Continuous practice - The true key to success

One of the valuable lessons from legendary investors is: never lose money foolishly. To achieve this, you must constantly learn, analyze stocks in various situations, and practice trading to bridge theory and reality.

The most effective way is trial trading with a demo account, where you can practice analysis, test strategies, and accumulate experience without risking real money. This builds confidence and ensures your strategy works before deploying real capital.

10. Maintain psychological stability - The final decisive factor

The stock market is highly volatile. A position that’s making big profits can turn into a loss in just a few days. Keep a stable mindset, analyze the real reasons behind fluctuations, and make calm decisions to cut losses or hold.

Don’t act impulsively out of fear or panic. Emotional decisions often lead to regret later. Remember, failures are part of the learning process. The important thing is to learn from them and keep moving forward.

Conclusion

Effective stock investment guidance requires patience, strict discipline, and mental stability. From choosing the right investment method, diversifying your portfolio, controlling risks, to maintaining a steady mindset—all are indispensable factors. Start with these fundamental principles, keep learning, and you will build a sustainable and profitable stock investment path.