'I of course made a loss': 6 crucial stock market lessons new retail investors learned in 2020

The number of new retail investors exploded, and many had little to no stock market experience.


When the stock market crashed in March 2020 as the Covid pandemic shut down the U.S. economy, Nancy Hagan, a 34-year-old in Mesa, Arizona, began panic-selling her investments. Then the market bounced back, and she regretted "reacting just based on emotion."

"I of course made a loss and I realized I really needed to do a lot more education about how the stock market works," she says.

Hagan is part of the surge in retail investors who began buying stocks in 2020. Many of them had little to no investing experience or education. That meant learning on their feet and pretty quickly, as the market whiplashed.

With more time on their hands amid Covid-19 lockdowns, a record number of retail investors, or nonprofessional investors managing their own money, began buying stocks. In 2020, retail investors were responsible for about 20% of the shares traded on the U.S. stock market, up from about 15% in 2019 and 10% in 2010, according to Bloomberg Intelligence. And their experiences taught them a lot.

6 lessons new retail investors say they learned the hard way

Video by Helen Zhao

Here are six key takeaways about investing in the stock market from retail investors who got started in 2020.

1. Don't let emotion guide your decisions

After Hagan panic-sold her stocks at a loss in March 2020, before the market rebounded, she learned to not let her emotions dictate her investing decisions.

"I learned how to be patient with myself, how to remove emotion from my investments and trading, and I started researching companies, learning how to evaluate them better," Hagan says.

Experts suggest formulating a plan that's right for you, based on your goals, and then sticking to it. And, if your plan is to invest for the long term, such as for retirement, it can be helpful to tune out news of day-to-day volatility, since it's not really relevant to you.

2. Limit riskier investments to money you can afford to lose

In 2020, 26-year-old Aman Gill from Stockton, California, began buying and selling individual stocks every few weeks. But that's only using money she's "willing to lose and play around with."

That's because she first prioritizes contributing to her 401(k), Roth IRA, and savings account. Then she buys stocks using additional savings she can afford to lose.

Experts recommend investing just 5%-10% of your portfolio in individual stocks. Park the rest of your money in low-cost, highly-diversified index funds, ETFs, or target-date funds, which are baskets of securities that reduce risk, they suggest.  

3. Research a stock's valuation

An important metric for evaluating a stock is its price-to-earnings ratio, which measures a stock's valuation. If a stock is overvalued, that means it's at risk of falling.

"You definitely need to pay attention to the valuation because that will be an important determinant of the stock's future returns," says Christine Benz, director of personal finance at Morningstar. "So you want a good quality company, and you want to be able to buy it when the price is reasonable."

I learned how to be patient with myself, how to remove emotion from my investments and trading, and I started researching companies, learning how to evaluate them better.
Nancy Hagan
new retail investor

4. Buy and hold

Usama Ehsan, a 29-year-old in Costa Mesa, California, says the "craziest investing risk" he took was on Uber. "I was being told to sell, sell, sell it, sell it," he says. Instead, Ehsan held on, and his investment has nearly doubled.

"I haven't sold anything yet," Ehsan says of his portfolio. "I don't think I'm going to be pulling any of my money out."

Famed investor Warren Buffett would approve, Benz says. "Warren Buffett has said that his ideal holding period is forever. And I think that that's a great mantra for individual investors to keep in mind. If they make investments and they've really put some thought into what those investments are, to the extent that they can hang on and be patient, that will tend to influence better investment results."

Why Warren Buffett prefers passive investing

Video by Courtney Stith

5. Don't just invest in big names

Hagan doesn't just invest in high-profile names often heard of on the news but also "companies along their supply chain — so manufacturers, transportation, and other companies that support their business."

Benz says that's a great way to find investment opportunities at a more "reasonable price" that "stand to benefit from similar trends" as the major players.

6. Don't listen to everything you hear on social media

Jake Schinasi, 19-year-old in New York City, learned "the hard way" to be skeptical about investing advice you hear on social media. "I invested in some oil company," he says. "It was a little shady and everyone was saying, 'Oh, invest in it,' and it tanked, I think 30%, 40%."

Not everyone offering finance tips on social media has your best interests at heart. "They may have some lousy company that they want to unload that they're trying to get other people excited about," Benz says.

Most beginning investors don't need to learn everything about how the stock market works, experts say, as long as they invest for the long term in highly diversified assets, like index funds. But if you plan on taking more risk, remember to take the emotion out of investing and to do your homework.

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