10 Stockmarket Investment Tips For Beginners
September 5, 2008
Stockmarket investment is one of the best ways to beat inflation and achieve an excellent return on your money. Obviously, if you have your own business, you’ll want to invest in that first but if you’re thinking of additional long term investments, you’re far better off investing in the stockmarket than putting your money in the bank.
Stockmarket Investment Isn’t Gambling: Don’t look at the stockmarket as a way to make short term cash. You need to be prepared to invest your money for at least five years.
Be Prepared To Study: Learning about the stockmarket requires quite a bit of study. If you don’t have the time and interest to learn, consider investing in a managed fund.
Learn The Basics First: Get a basic book, so you understand the market in general first, before plunging into something complicated.
Reduce Risk By Spreading Your Investment: Don’t invest in individual stocks until you have enough available cash to make it worthwhile to invest in at least half a dozen. You could use a managed fund to build up this sum.
Stock Tips Suck: Don’t take stock tips from anyone – especially folks on investment forums, or from magazines. I’ve visited forums in the past and I reckon a good 90% either don’t know what they’re talking about, or they’re simply there to ramp up shares they already own. And most shares recommended in magazines, have increased in price before the publication hits the stands.
Make Sure You Understand What You’re Investing In: Don’t invest in sectors you don’t understand, or have no interest in learning about. If you do, you won’t understand factors which could affect that whole sector and the company you own shares in.
Reduce Your Risk: Never put all your eggs in one basket – even if you think it is going to be the next Microsoft. I prefer to invest in 5 or 6 different shares at a time. Some people choose more. This will depend on your own attitude to risk. And no matter how great you think a company is, never become emotionally attached to it.
Focus On The Complete Portfolio: Don’t get stressed or upset if you have to cut your losses on a particular share. It’s the whole picture that’s important. I’ve always found that out of 6 shares – two will do well, two will be mediocre and two will do badly.
Don’t Invest And Forget: Some people will tell you not to watch the stockmarket – just invest and forget. I don’t completely agree on this point. While there’s no point in obsessing over the price fluctuations of one particular share, you do need to keep reading the news for changes in the industry, or changes that may affect the company. This applies to both large and small companies – even huge companies can and do go bust.
Don’t Sell The Prize Pig: If you’re in a position where you need to sell – always get rid of your worst performing shares first. And never sell your best shares to loan anybody money, especially if they want to invest it in a business that’s struggling. (*This was the worst ever investment mistake I made)
Do you have any tips to add? Have you invested in the stockmarket before, or would you consider it in the future. Or are you one of those people who find the idea of stockmarket investment way too risky? Please share in the comments section and feel free to ask any questions relating to stockmarket investment.
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Comments
30 Responses to “10 Stockmarket Investment Tips For Beginners”
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Hi Cath,
Good list, especially the part about being wary of motives behind a tip. I’d just add look for companies with whom you, personally, like to do business. Chances are that other investors do/will, too, because they’re doing a good job at what they do.
Betsy
I joined one of those stock clubs back in the 90′s that became very popular then. I learned a lot and had a lot of fun. I got away from it after I had my next set of kids. I switched over to mutual funds, which if you don’t want to spend a lot of time worrying about keeping track all the time is an easier way to invest.
You have given out some very smart advice here!
I would highlight two points. The best advice I heard from a financial planner is never invest more then what you are prepared to lose. The stock market is for after you have paid off your high interest credit cards and debt and have security savings put aside. Second, Diversify, diversify, diversify.
Wendi Kelly-Life’s Little Inspirations’s last blog post..Giving Back to the Givers
Yes, ignore stock tips! People will say you should buy a stock because it’s been going up lately, or because it’s a well-known company, or because it’s a “good” company, etc. The reason is always something very vague, or something that doesn’t indicate the stock will go up in the future.
I prefer to go with stock mutual funds, because it takes almost no time at all, and that makes it residual income. But you have to watch out for funds with high fees.
If you want to learn about investing in individual stocks, I guess Warren Buffett is a good person to learn from!
Hunter Nuttall’s last blog post..14 Life Lessons From Scarface
I do invest in the stock market. I don’t consider it risky: I consider ti essential. If you keep all your money in “safe” vehicles, inflation slowly erodes its value over the years. That’s a big risk too.
I rebalance my portfolio about once a year, so while I don’t ignore it completely, I do ignore daily fluctuations.
Vered – MomGrind’s last blog post..Quirky, Yet Boring
Hi Betsy – That is a great point. If the fundamentals of a business are good and it’s also a business you like dealing with – it’s usually a smart move. As you said, if you like them, chances are lots of other people will too.
Hi Wendi – I’ve never joined an investment club but they do sound like a lot of fun. “Never invest money that you can’t afford to lose.” is a great point. I think the trouble is, when people do that, they may need to sell before they need to and could wind up selling at a loss.
As you said, diversifying is important too. Nobody should restrict themselves to investing in just one sector.
Hi Hunter – I guessed you might save time by using mutual funds. Warren Buffet is a good teacher indeed. I once bought a book written by his ex daughter in law though and I got the impression that much of what was written was guess work. I think she was just trading on his name, rather than sharing his secrets.
Hi Vered – that is a good point – keeping your money in safe vehicles can be far more risky, thanks to inflation. When people tell me they think banks are a safe bet for their money, I always advise them to put their figures into Microsoft Money and also to put in the average inflation figure. The results are quite shocking.
Try Jim Cramer’s books. He makes a lot of sense and writes specifically for individual investors.
Brad Shorr’s last blog post..10 Ways To Free Your Business Writing, by Joanna Young
Hi Brad – Thanks. I don’t think I’ve read Jim’s books.
You forgot:
Buy low. Sell high.
Friar’s last blog post..Forbidden Laughter: Times I’ve Laughed when I Shouldn’t Have.
Hi Friar – That’s a good point – sometimes I forget to point out the obvious.
Hi Catherine,
I agree, investing in our own business first is the most important, after that, the points you made are great, as are the other ideas that have been added in the comments.
Barbara Swafford’s last blog post..Open Mic – The Need For Speed
Hi Barbara – definitely, your own business should come first. I guess if you’re not willing to invest in yourself, nobody else will.
“Stock market isn’t gambling.” Sometimes we get the same rush (and the same pain)! Not looking at it for short-term gains is a wise way to look at it. It certainly helps when riding the up-and-down fluctuations of the market.
Al at 7P’s last blog post..What’s More Important: Who You Are or What You Do?
Hi Al – that is true – I guess folk who do look at it for short term gains are still gambling. It’s a shame – they hear a story about someone who doubled their money over night and just jump right in.
I freely admit, knowing and investing in the stock market is not my forte. I find it all confusing and like a wild roller coaster ride. Or driving a car without a steering wheel.
I know part of my problem is knowledge. I don’t know exactly how to invest in the stock market and I do know people make money in it so I’m careful never to criticize.
I have always had an eye for real estate investments. To me they are much safer and build your wealth much quicker. When you buy a home to flip, here’s what you know (or should).
You know how much it costs. How much repairs will be. If this kind of house for the price you’re going for will sell, how long repairs might take, etc. Basically, you can plan out your profit.
Risk – yes of course. I like to think of it as a controlled risk because you have total control over your investment and if it will make money or not. But considering if you flip a home you can make a 300% return on your money in a matter of months is just . . . cool.
Those are some great tips you mentioned and I’ll remember to never take advice from forums and chat rooms. My problem is, I just don’t understand all the indexes, pluses and minuses, and when something in the stock market will go up and when it will go down and when to sell and when not to ……..
I probably would need to read a good book on it. Just haven’t really taken the time.
Hi Rita – I knew you’d have some great advice to chip in with here. Good point re: Insider Trading. I guess a lot of people wouldn’t be aware that they’re breaking the law and could even go to jail – just look at what happened to Martha Stewart.
Patience – definitely important as you said, diversifying according to age is important. Small, new companies are great for someone young, but once folk are nearing retirement, they might want to focus on large, well established companies that give them a higher dividend, instead of huge potential for growth.
And that is really a good point regarding the elections. Folk in the US will want to be extra cautious later in the year and for a few months following that.
Now, I didn’t know about the October 29th curse. I had no idea that people let it bother them all these years later. But, if it enables people to pick up cheap stocks early November, then that’s a great thing. Thanks Rita – I’ll remember that.
If I emigrate to Canada, I’ll need to learn more about the American market and I’ll remember those points.
It’s interesting that the war hasn’t stimulated the economy this time? I wonder why that is? Is it more to do with the public attitude towards this war, or something else?
I didn’t know there was a Stock Market For Dummies book. Those Dummies books must be making a fortune for somebody.
Hi John – You know lots of folk I know who invest in property like you do – don’t understand the stockmarket. I’ve always been the opposite because I’ve had my fingers burnt.
I wonder if it’s because they’re both quite time consuming to learn about. It would definitely help you to understand more. I think understanding the cyclical nature of the market would also give you a good idea as to when a property boom is likely to end.
It sounds like you do need to read a basic book John – something like the one Rita mentioned. And I could cover some of the things you mentioned, in future posts. I like writing on this topic and I guess it definitely comes under the umbrella of business.
Thanks Cath. Whenever I have questions I know who to come to.
Hi Rita – I don’t mind politics on my blog. And Vegas would be fantastic. I don’t have a timeframe yet. But definitely in the next few months.
Thank you for all the tips. Really enjoyed reading your post.
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Hi Rita – I am kind of swaying towards Vancouver right now. And Vegas would be a lot of fun.
I know I probably should be more interested in this stuff, but I fall asleep the moment I start reading about investing.
I therefore have an investment planner. She knows what I want and my risk-level and goes to it. I get occasional updates and I’m happy. I might not make the riches that are possible but I’m in it for the long haul, so am willing to be a little less risky.
Alex Fayle’s last blog post..Trapped in the Day-to-Day: Urban Panther Interview Part 1
Hi Alex – some people just don’t enjoy it. And if you’re one of those people, you’re definitely better off outsourcing the task to your investment planner.
Great post. Ignorance is the enemy of retirement.
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Definitely worth investing in your education if you want to become serious about earning a good passive income off of stock investing. These are some really good tips for sure.
I think that not enough new investors are willing to put the time into learning about investing their income the way they need to to succeed. I was reading one of Harv Eker’s books and he is saying that we should be reading at least one investment book per month if we really want to succeed and become wealthy.
I’m trying to follow his advice on this. Thanks for the post nice work and keep it up!
Mike’s last blog post..Make Residual Income by Investing Some of What you Earn
Hi Mike – one investment book a month seems like a smart idea. I used to use specialist software, which helped me to research businesses faster too. It’s expensive but it was definitely worth it.
A decent investment newsletter usually pays for itself too.
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Dividends have little or nothing to do with whether a stock is a good buy. If a dividend is extremely high, it is probably not sustainable. Dividends can always be cut. The most important thing is the over-all market trend. The other main thing is earnings growth. If a company keeps increasing its earnings 25% every quarter, that stock will go up even if it pays no dividend, whereas a high-dividend stock that decreases its earnings every quarter is going to go down even in a good market.
Amy’s last blog post..All About Dividend Investing: The Easy Way To Get Start
For me the stock is not high risk or low is not the main issue. Is it profitable, range of move for pass three months and rating. For me a high risk stock would be Airlines, or a Biomedical company.
Amy’s last blog post..All About Dividend Investing: The Easy Way To Get Start