Investing For Beginners
Welcome to the first blog on TickerTalk, and since I suppose I’m a noob blogger now, I think it’s only fitting to begin with a topic for noob investors. This will be the first in a series of posts for beginners to learn the basics of investing in stocks. So to start with we will just cover a few basics before we get stuck into stock selection.
Whether you’re a kid, a dorky teen, someone going through a midlife crisis or retired there’s never a bad time to start learning how to invest. Now, look I’m not here to sell you some fairytale that investing will make you as rich as Warren Buffett, because that would be lying. Carefully selecting a portfolio of well performing takes a lot of time, patience and money. You have to be prepared to ride the highs and lows of the market as you build up your investment. Stock picking can be a enjoyable and rewarding venture, but before you start investing you need to know these few useful rookie tips:
If It’s Too Good To Be True, Then It Probably Is
Before you even buy a stock, you’ll probably come across a lot of bullshit artists, scammers and dimwits all trying to sell you their methods or products to make big money fast. Think about it, if you had some magic stock picking system that could pick the winners and make you millions fast, why would you need to sell that system to others? Wouldn’t you already would be rich? And letting people in on your secret system would probably just deplete your returns once everyone in the market is using your stock picking method.
Don’t waste your time, energy or money trying to buy into some get rich quick scheme or training course. Plus, you’re gonna want to have as much capital as possible ready to invest, so don’t waste it by getting sucked into these scams and false promising products.
Growing a Portfolio Takes Time and Patience
So, if you still think you’re smart and talented enough to make lots of money fast then prepare to have your bubble burst. Growing a healthy profitable portfolio takes years. You have to be measured, realistic and patient in your approach, this is something that is very difficult to do. Sometimes, you’ll invest in a number of stocks to see little to no return. All the while you look at other stocks doubling in price in just a few months. It’s frustrating but unless you have a crystal ball you’ll never be to time the markets and make large gains in short periods.
A common mistake made my many beginners, myself included would be to sell too early rather than sitting and waiting. So many times I would buy stock in a company I thought was about to go up, I’d check the stock price each day and grow increasingly frustrated when it wouldn’t rise. I’d see all these other stocks have huge price increases and get annoyed at myself for picking the dud.
So, of course being the idiot that I am, I would sell the stock for peanuts, use the cash I got back from selling the stock and invest in another company and start the process all over again. Oh, and guess what? After I sold the stock for a loss, they would miraculously start rising in price to levels I wouldn’t have ever expected. Then I’d go to the pub and drown my sorrows. The frustrating thing is that I wasn’t wrong with my analysis or valuation of the companies I was buying into, I was simply impatient.
Another common rookie mistake is over-trading, buying and selling stocks too often is a sure fire way to lose money. By constantly buying new stocks, then selling them after a few months all you’re doing is paying more in brokerage fees. Depending on which broker you go through these fees may be quite high. But even if the fees are low, by having a high volume of trades the fees begin to add up and eat away at your capital.
Also, keep in my mind that if you sell your stocks for a gain, you will have to pay tax on it, once again reducing your capital. Of course, sometimes it is necessary to cut your losses but for the most part if you’ve conducted the proper research and are confident in the company’s future earnings capability you should buy and hold the stock for a long time. As a beginner investor it is important to get into good habits early, and over-trading is often a costly endeavour.
Prepare and Practice
The final tip in the first part of our series is that before you start investing you must do your homework. I’m almost positive that before you buy an expensive new appliance, gadget or car you do your research, read reviews, talk to people, compare prices, etc.
So why then do so many investors drop thousands of dollars on stocks without properly understanding? One reason is people are overconfident in their stock picking ability. Why conduct research if you have the golden touch? Another reason is that people have FOMO, they think if they don’t jump on it straight away then the price will rise quickly and they won’t get the juicy returns they desire.
Do yourself a favour, before dropping fat stacks of cash on stocks, do your homework. Read finance and investing books, watch YouTube videos of Warren Buffett and other successful investors. Moreover, learn how to read financial statements, investigate companies and their products, follow the latest market news and use a demo investing account before doing the real thing.
Of course, as a new investor you’re excited and eager to get into it and start buying shares. But by building up your knowledge and skills before going live you will ensure you don’t waste your capital on rubbish stocks.
Thanks for taking the time to read this and I hope you get something out of it.
Next time we will look more closely at how to select stocks for your portfolio.