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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Risk And Money In Business - The Rules

March 16, 2008

Before I went into business myself, stockmarket investment was a hobby. I was successful at it because I did a vast amount of research and only invested in businesses that I understood. I also had a strict set of rules, which I barely ever deviated from. And on the couple of occasions that I did, I suffered financially.

I didn’t realise this at first, but these rules can and should be applied to your own business too. Here’s some of my favourite ones:

The Complete Picture

Image by Frazzled Jen

Stay Focused On The Complete Picture:
Always remember that you can’t get things right all the time and not everything you do will be perfect. But don’t let small mistakes phase you - it’s the complete picture that matters.

Stockmarket Investment - The Complete Picture

I used to hold shares in 6 to 8 companies at a time. The law of averages dictated that a couple of these would do amazingly well, two would give average performance and two would do badly. When I had good reason to, I would sell poor performers at a loss. This didn’t bother me – I didn’t see it as a loss, so long as I was making an overall profit.

The Complete Picture of Your Business

You need to stay focused on the complete picture in business too. If part of your business or even a whole business that you own is doing badly – ask yourself these questions. 1) Is there a problem within the business that can be easily rectified to turn this business round? 2) Is the business suffering because of external factors affecting the market – eg. high fuel prices? If so, can I do anything about this and is it likely to be a long term problem? 3) Did I make a mistake? Is this thing ever likely to work, or would I be better ditching it and doing something else?

Don’t Throw Good Money After Bad

A friend once asked me if it bothered me having to sell poor performing shares at a loss and would I not prefer to wait and try to get my money back. This is a fatal attitude and the same applies to business as it does to stocks.

Don’t regard selling something which is losing money as a loss - even if it has already lost you money. If you do, you may begin to feel that you need to make that money back. But, the last way you’re going to do that is by holding on to something that sucks. You’d be far better off putting the money and effort into something else.

This rule applies to shares in particular companies and also to your own business. If you need to get rid of part of your business, or all of it, because it just isn’t going to work out, you should do it as quickly as possible.

Make Sure You Understand The Market You’re In

Make sure you understand the market you’re in whether you’re investing in shares or a business. And if you don’t understand it initially, make sure it’s something you’re going to be interested in learning about. You will need to understand what changes might affect the sector you’re in. And you’re going to have to keep your eye on the ball, so that you’re aware of any changes that may affect your business and that requires a lot of reading. If you don’t, you’ll suffer.

I once invested in an engineering company because the financials were good. The trouble was - I didn’t really understand engineering and I probably never will. The shares plummeted and I didn’t understand enough about the sector to realise the cause. But, companies that I had a good understanding and interest in did extremely well and I doubled and trebled my investment in a reasonably short space of time. (*NB - By a short space of time - I mean years not days. This type of investment is not a way to get rich quick and I would never recommend trying to do so).

Never Sell Anything Profitable To Raise Capital

Lemons Image by Mewtate.

If you want to raise cash to invest in something else - dump the bad shares, or the bad businesses. Obviously, they’re not going to be worth as much, but the important point to remember is you’re taking a lot of risk. If you keep the lemons you already have and sell your prize pig to invest in something else, then discover it’s a lemon too - all those lemons won’t make lemonade.

One of my most stupid mistakes was during a bear market. The lemons I held had plummeted to worthlessness and the average ones weren’t far behind. But, the prize pigs hadn’t fallen much at all, because I only invested in small companies. But, my ex-husband was struggling with his business and persuaded me to sell my best shares to help him out. This was a foolish move. The reason he was struggling was because he made no effort. And a few months later, he was back to square one and asking for more cash.

Remember That Stocks And Businesses Aren’t Babies

Try not to get too emotionally attached to particular shares you invest in, or your business. And don’t treat them like babies. Some people even call their business their baby and it makes me want to throw up. You simply can’t have the same emotional attachment to a business as you would a baby. And babies aren’t something you might grow to sell - at least not if you’re reasonably normal. But businesses are just things and if you become too attached to them, you’ll find it difficult to part with them when you need to.

Don’t Act On The Advice Of Others

You should never invest in shares because someone gave you a tip, or act on the advice of a stockbroker without doing your own research. And the same goes for business. Listen to advice by all means, but also do your own research so you understand what you’re getting into. The best advice in the world is worthless if you don’t really understand it.

These rules have worked for me, but they may not work for everyone. For example investing in 6-8 shares, or businesses at a time may not appeal to some people. And you do need to consider many factors - including your age. I acquired a huge amount of knowledge before investing in shares and I learned about business as I went along (doing the research first is better if you can).

If you enjoyed this article, click here to subscribe in a reader so that you don’t miss the next part of this series: The Dangers of Business Partnerships.

Did you find this useful? Do you have any questions? Or maybe you have more tips on risk and money in business that you would like to share?

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February 5, 2008

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I’d love to send all my wonderful readers to Necker Island. But Richard Branson’s prices are way out of my reach.

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