At the beginning of every investment you will ever make there is always going to be self-doubt. Maybe you didn’t do enough research, maybe your position placement is wrong, perhaps you didn’t evaluate risk properly.
You can usually tell if your investment is going to be successful within the first couple days. This is because you will start to see a return on investment within this time period. If your investment is instead losing money in the first couple days then chances are the overall investment will fail.
Within this article I am going to show you how to calculate how likely you are to have an investment succeeded. Further, if you have an investment working against you I will show you how to begin the process of damage mitigation or even turn a failing investment into a successful one.
Here at Chronohistoria it is my goal to help investors take the next step in their investing journey. I teach, provide research, and generally help to generate a higher rate of return on investments well above market average (10%). If you like content like this then subscribe to the free newsletter to keep up to date.
Without further ado, here is how you can tell if your stock investment is going to be successful.
If Your Investment Goes Negative Within the First Couple Days, Get Out
I remember my first couple investments, they almost instantly went negative and continued to go negative over the first couple days.
Typically this was caused by either a miscalculation on my part or a misunderstanding. Oftentimes I failed to look at the volume or the general trend of the stock’s finances before investing.
Investing is a journey where you are constantly learning. The secret to the stock market is to keep learning so that you don’t make the same mistake twice.
If you see your investment going negative, or red, within the first couple days we need to first ask ourselves why it went red. If our investment failed because the stock simply was trending down when we bought in then it is our fault. This is because we failed to see the overall trend in the market, and as such failed to ‘read’ the stocks chart.
Let’s say you wanted to invest in ATHM, an interactive media and services company.
In early June 2021 ATHM reported a decent earnings report. A lot of people bought in thinking the stock will rebound back up to the $100 area. Unfortunately these investors failed to recognize the overall market trend on the stock and over the next couple months would have lost around 43% of their total investment.
The important part is that they would have started losing money almost instantly. The newer investors would have seen their investment decline in value over the first couple days. This is when you as an investor should get you and cut your losses.
The important thing to remember from this scenario is that the overall investment went negative in the first couple days. Not after a week or two of upwards momentum. If your investment goes negative within the first couple days then you need to start looking for an exit strategy.
If Your Investment Goes Positive Within the First Couple Days, Stay In
When you get in a good investment you will start to notice your investment value increase almost immediately. This is because other people will start to notice the value in your investment and get it.
Naturally this will increase the value of the investment over time and will directly result in you making money. This is why if your investment sees growth in the first couple days then chances are you have a winner in your portfolio.
Just like before with a failing investment, let’s look at a winning investment.
Here is a 20 year chart on the SPY. The SPY is an ETF that tracks the top 500 companies by market cap in the United States. For the past 20 years SPY has consistently been a winner, returning around 10% per year (average).
If you invested at any point outside major events you would have seen your investment increase in value almost immediately. At first this would have been nothing worth of value but it shows that your investment is successful.
A majority of the time your investment will work almost instantly. This is because as more and more investors realize the value of your investment they will buy in, thus increasing the price of the investment on the market.
This term is called Alpha decay, and it generally means that overtime markets will become accurately priced. If you find a price difference, say between your target investment and what you think it’s worth, if you’re correct then the market will correct over time.
This is the underlying theory on how markets work and investments gain in capital value.
The important part is that if you invest in a stock and its a good idea you should start seeing your investment increase in value within a couple days. If you don’t see this happening then chances are you might have a bad investment on your hands, or perhaps you need to give it some more time to see which way it will go.
A good investment will return capital (ROI) almost instantly.
How to Salvage a Non Successful Investment
Ok, so your investment is going against you. Happens to me all the time.
Once we have identified a bad investment in our portfolio we need to act fast to get out and save our capital. One of the easiest ways to do this is just to sell the position and cut your losses. This will simply exit you out and is sometimes the best thing to do.
However, if you know that an investment is a bad one then you have vital knowledge on an investment. Let’s use that to our advantage.
Ok, let’s say you bought 100 shares of ATHM for $90 in May of 2021.
In early June you realized this was a bad investment as the stock continued to downtrend. You sell your position of 100 shares for $80, this means that you lost $1,000 over the investment. However since you know that the investment was a bad idea now you take out a short position.
A short position is when you bet against the stock. If the stock price goes down, you will make money. If you are unfamiliar with the concept I wrote an entire article that goes over shorting. You can see it here
So we took out a short position in early June for $80 at -100 shares. We wait one month until late August 2021 to buy back the 100 shares for $40 a share. Now we made $4,000 on the investment.
Overall we are up $3,000 on the investment. This was only possible because we identified a bad investment and changed our portfolio strategy to accommodate. We shorted the failing investment and actually made money on the overall trade.
That is how you turn a failing investment into a winning investment!
Learning how to tell if your stock investment is going to be successful is a vital trick to properly making money in the market. If your position starts going against you initially, don’t stick it out and wait for things to get better. Instead liquidate and inverse the position to make your money back.
Naturally you want to do this in a safe manner, but if done properly you will become filthy rich by investing properly.
As always if you like content like this then feel free to subscribe to the free newsletter and share around on social media.
Further, you can check out my other articles below.
Here is how long it really takes to learn how to trade options. Most people think they can jump right in however that’s dangerous.
There are 3 things that could happen if nobody buys the company’s stock. Make sure you are aware of these effects so that you can be ready.
Global Macro is far from dead. Here are 5 tricks to help you generate above average returns in your global positions.
Until we meet again, I wish you the best of luck in your investment journey.