Learning to invest with confidence: Proven strategies to help beat the stock market

Learning to invest with confidence: Proven strategies to help beat the stock market

Written by Katie Gomez

Confidence is something that can take a while for investors and traders to build. The stock market is a fear-inducing, exciting, adrenaline-producing, yet soul-crushing path to embark upon, and not everyone can be cut out for it. Moreover, the way to success is neither easy nor linear when it comes to investing or trading. However, besides the amount of market experience you have, some tools can help increase your confidence on your journey. 

In order to “beat” the stock market, you must first become a worthy opponent of it. You can become this by building your confidence and viewing investing as a fair fight. In this article, I will provide a few research-backed tools to help get you to that mindset.

Many attribute their higher levels of confidence to the “fake it til you make it mentality,” while this is true to an extent; eventually, you have to have the goods to back it up. You may begin hemorrhaging money without true confidence as an investor or trader. Therefore, it would be wise to turn to actionable tools to build that confidence instead of faking it, starting with investing incrementally with dollar cost-averaging:

1. Dollar-cost averaging Essentially a dollar fixed dollar amount of a particular investment regularly, disregarding the share price at each interval. You can work to make your investments simpler by buying a fixed dollar amount instead of investing all your assets at once (i.e., gifted money, inheritance, nest egg/savings, bonds, etc.); this will give you more sense of control over your investments, as it feels less scary or risky. 

Additionally, focusing on incremental investing will help you become more comfortable with the market’s natural movement and not get as scared when the market has bad days. Especially for newer investors, it is much easier to focus on the dollar amount invested across the board (1,000 in x, 1,000 in y) due to stocks’ varying prices per share. So instead of 50 shares in x and 300 shares in y- let brokerage programs or even investing apps like Robinhood keep track of the exact share amount; you focus on the dollar amount invested.

2. Use your losers just as much as your winners. Success is not the sole factor in building up one’s confidence. When you use a trading journal or some way to keep track of your losses and learn from the mistakes, you gain more from your wins because you will not make the same mistake twice once you recognize where you went wrong. 

Ironically, our failures help build up our confidence just as much as (if not more than) our successes. For instance, if you made the mistake of selling stock xyz too early out of emotional impulse, you’ll learn to sell half and wait next time. When we learn from our errors and mistakes, our self-efficacy (belief in oneself) starts to increase. 

3. Practice, practice, practice. Utilize the trading simulators; that’s what it is there for. Build yourself up and learn as much as possible with fake money before throwing yourself to the wolves (real market) when you’re underprepared. 

4. Diversify as much as you can. The more eggs you have in various baskets, the greater your chances of success are. It is easy to destroy your confidence when all of it depends on a single investment’s success. You must learn to utilize the law of averages and test the probability of investing in multiple stocks/securities (the more diverse, the better) to strengthen your confidence and portfolio.

5. Be aware of your strengths and weaknesses as an investor/trader. We all have both strong points and areas in need of improvement, and ignoring them is detrimental to building your confidence and your profits. No matter your strengths (successful at multi-tasking, highly organized, consistent), play to them first to build your confidence. From there, you can see what you struggle with (emotionally charged decisions, short attention spans, or inconsistent risk-to-reward ratios) to improve your confidence. 

Unfortunately, there are no quick fixes or “get rich quick strategies” regarding the stock market. The only way to truly beat it is to gain as much experience, skill, and confidence as you can along the way. The more you practice, diversify, reflect, and learn, the sooner you’ll start believing in yourself and your abilities, building a stronger sense of confidence and self-efficacy over time