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Canadians: 3 Stock Lessons You Won’t Want to Learn the Hard Way

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Investing is all about making money. Whenever an investor buys a Canadian stock, it’s in hopes of growing their portfolio. Unfortunately, it’s virtually impossible to buy a portfolio of stocks and not have a couple of losers. The key for investors, though, is that if you don’t make money on a stock, it’s crucial that you at least learn a lesson.

Learning from poor investments is important so you don’t repeat the same mistakes over again. Experience is something that is extremely valuable and has no substitute.

There are, of course, other ways to learn, such as reading about investing. This is beneficial because you can learn about massive mistakes to avoid. However, no matter how much reading you do, there will always inevitably mistakes you’re going to make.

It’s much better that you avoid the massive mistakes, though. With that in mind, here are three huge mistakes to always keep in mind when buying Canadian stocks. You won’t want to learn these the hard way.

Speculating or short-term trading is extremely difficult

One of the hardest parts about investing is staying patient and disciplined. Finding high-risk stocks with major upside potential can be enticing, but the risk is rarely worth the reward at the end of the day. If it were, everyone would do it.

It’s, of course, possible to get lucky every now and then. However, it’s tough to speculate and make money consistently.

Even the best traders have a hard time trading today. Algorithmic and high-frequency trading can make it extremely difficult.

For retail investors, though, there is no doubt that the best and safest way to invest, which’s been proven for decades, is long-term investing.

Diversify your Canadian stocks

Diversification is one of those things that everyone talks about, and for a good reason. It’s crucial that investors own investments in different stocks, industries, and even countries.

No matter how much of a sure thing you think a company is, anything can happen. The pandemic is a perfect example of that. Nobody ever imagined a global pandemic would impact the world for at least a year and a half.

Numerous risks could cause an investment to go bust. It’s therefore crucial you have adequate diversification, so you don’t have all your eggs in one basket. Otherwise, a small event, such as a natural disaster putting a company’s operations offline, could have disastrous consequences for your portfolio.

If your opinion on a stock changes, don’t hesitate to move on

If a Canadian stock’s operations, or your opinion on its future potential changes, you shouldn’t hesitate to move on. When a company’s position changes or is impacted, and its stock loses value, investors often don’t sell.

Some investors want to hold on to at least break even. Others want to hold on because they just bought the stock, and it’s a long-term investment.

Obviously, if it’s just declined in price and nothing about the business has changed, it doesn’t make sense to move on.

However, the minute the operations are impacted or its future outlook is changed, you may want to review whether it’s worth an investment. And if you find it not to be, move on immediately. There are plenty of other Canadian stocks to buy that can outperform in the meantime.

An investor who bought Air Canada last year right before the pandemic would have been extremely unlucky. The stock looked like an excellent business at the time with huge growth potential.

So it would have been purely bad luck to buy it right before the pandemic. The best thing to do, though, would be to sell the stock immediately. That’s precisely what Warren Buffett did with his airline stocks that were recent additions to his portfolio.

An investor who has tried to hold on for Air Canada’s recovery would still be down 40% today from the start of 2020. Meanwhile, almost every other Canadian stock on the market has recovered over the last year.

So if your opinion changes about a stock, rather than hold onto a loser hoping to get back some of your money, your best bet will be to move on right away and find a new, high-quality investment.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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