Where Do I Start?

September 27, 2007 at 12:12 am · Filed Under Educational 

Most people reading this post are probably here because they’re interested in stocks but don’t know the first thing about them. Maybe you just started working and you know you should be investing your retirement savings plans but aren’t quite sure how. Or maybe you have a little bit of savings and you’re tired of letting it wallow in a savings account that offers small returns. Learning new things can be difficult, but learning things on your own can seem downright impossible at times.

When I was little, I was terrified of the water. Fortunately my parents forced me to take swimming lessons even though I hated it and complained every day before class. In the beginning it took quite a bit of work just to get me in the water, and even more work to get me to put my face in the water, but eventually I got comfortable and started to love being in the pool. I may not be a world class swimmer, but at least I feel like I can get around adequately in the water now. Learning how to invest can bring about similar resistance in people- the inexperience and risk of losing money makes you have an irrational fear of the market. Like swimming, small steps should be taken when approaching the stock market.

I’m sure everyone has flipped by the news on tv and heard that the Dow Jones and NASDAQ were up for the day, but do you really know what that means? As it would be ridiculous to learn how to swim without water, it would also be ridiculous to learn about stocks without surrounding yourself with the market. Just learning the terminology can take a while, but stopping by investment news sites like any of the ones listed in my links section (or reading lamdar.com every day is good too ;)) or reading the business section of the newspaper can really help a lot. One important thing to notice is how often the “experts” give conflicting opinions on things, i.e. one world renowned analyst says the market will go up at least 10% by the end of the year while another equally renowned analyst says that the market will crash before the end of the year. Reading general books on the subject also helps (I have a recommended reading list on this site), and the web can be a wonderful source of information as long as you have good mental junk filters.

While you’re doing all of this reading and absorbing information, you should probably start a watch list of stocks. To start this list, think of all the companies that you like and look them up to see if they’re public. As you read the news more now, there will be certain companies that are interesting to you that you should also add. Finally, running screens based on what you learn from the books should turn up stocks you’ll want to keep track of too. You should start following the companies on your list so that you can get a feel for how stocks react to news and how much extraneous noise there is in the daily and even weekly movements of stocks. You can even start paper trading; track stocks you would have bought and sold along with the prices you would get them at to see how successful you would be. Note that a few lucky trades that work out well shouldn’t make you overconfident at this point though, since even the worst investors I know have had a few big winners along the way (along with hundreds more big losers that they’ll fail to mention whenever they talk to others about it).

Now that you’ve followed the market a little bit and know the basics, like what a limit order is versus a market order and what earnings are versus revenues, you’ll probably want to start making real investments. Hopefully you have at least a few stocks on your watch list by now and a favorite company you want to invest in. Getting some real money on the table will make a big difference over just paper trading and you’ll find it harder to make real decisions. As you gain experience you should start trying to quantify your strategy. What makes you buy a stock? What makes you sell a stock? Do you favor growth or value stocks more? Are you more of an investor or a trader? Make it a point to track your reasons for buying and selling different stocks so that you can determine if your strategy is working out. The learning will never stop, but unfortunately this post has come to an end. Look for some depth on my actual strategies in the future…

Comments

One Response to “Where Do I Start?”

  1. Yhudy on December 17th, 2015 12:43 am

    ??,I would like to ask a question about 0945, I find that HSBC has ddeucted 25% as income tax before payout the dividend, can I claim this 25% back? or HSBC has the right to deduct it automatically? thanks.