Beginning investors shouldn’t chase momentum plays and other hot stocks that could mint triple-digit gains in a very short time. Instead, it may be best to have more of a slow, steady approach to building wealth. Indeed, it’s incredibly boring to set and forget a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) for the years or decades ahead. That said, you can avoid potential cliffs by avoiding the so-called “sexy” trades (these days, it’s all about the generative artificial intelligence, or AI, and the chips that power them) at any given time.
Indeed, the hottest skyrocketing play of the day could continue to fly even higher into orbit. However, if a stock in question can triple in weeks, you had better not be too shocked if it loses 50%, 66%, 70% or even more of its value over a similar timespan.
Of course, “what goes up must come down” does not necessarily apply to 100% of situations in the equity markets.
However, overenthusiasm, euphoria, and the increased willingness to pay up for stocks of uncertain value can be a recipe for some pretty awful investing mistakes. It’s hard not to have skin in the game of a stock that’s already risen by multi-bagger percentage points. However, if you’re going to be late to a party and it’s a quarter to midnight, perhaps it’s best to call it a day and stay in for the night.
Is it just the momentum that has you interested in a stock? Or is it the longer-term growth narrative?
Further, those keen about investing in a certain theme, fad, or technology should ask themselves if they would still buy a stock if it were to shed 75% of its value in a matter of weeks.
Beginners: Don’t chase gains. Chase value!
If you don’t envision yourself sticking around or buying more shares after a catastrophic dip that has investors in a panic to sell, it’s probably not a great idea to punch your ticket in the first place as a beginning investor. Indeed, the fear of missing out (FOMO) is a powerful emotion that can lead many new investors to rough and tough results.
The good news is that even the hottest stock on Earth can get more undervalued in time. Odds are that today isn’t any “ground floor” to buy into a name that’s already left the tarmac, so to speak. Remember that the market is here to serve you, not the other way around. Prices change constantly, and valuations can improve just as they can worsen with time.
Perhaps Warren Buffett’s baseball analogy sums it up best: investing is a game “with no-called strikes.” You don’t need to swing if the price isn’t right. If you choose to swing anyway, you will get a called strike.
And if you’re not careful and swing too willingly, you may strike out! With that in mind, let’s look at one cheap stock I view as a great buy for young, new investors.
TD Bank
TD Bank (TSX:TD) isn’t going to make you big money overnight. However, you will get a very reasonable price (13.4 times trailing price to earnings). Further, you’ll also get paid a nice 5.14% dividend yield for your patience. Additionally, this payout is slated to grow through the best and worst of times.
Though TD stock looks like dead money today based on its five-year chart, I’d encourage investors to think about the dividends, dividend growth, and (hopefully) a more promising trajectory ahead. TD has been through a horrid money-laundering mess in recent quarters.
The good news is that the worst of the matters is already behind the stock, in my opinion. With new regulatory experts aboard the mone-laundering team amid recent probes, I view TD as potentially having the best anti-money-laundering protocols in place after all is said and done.
