Ladies, it’s time to get into our core mission: INVESTING!
It is true that markets are losing momentum nowadays, but we need to bear in mind that it is during these times that investing in stock market becomes a unique opportunity, reserved for brave hearts and clever persons only.
For that You need to work out a plan. You need to ask Yourselves a series of questions and be quite specific about the answers.
- Why do You want to invest? What are Your specific tangible goals?
- How old are You?</li
- How much capital do You have to work with?
- What are Your strengths and Your weaknesses?
- How will You manage Your risk? ….
Once You have the written answers to these questions, then You can start to talk about the style of investing that You choose.
But before that, and if You are a beginner investor, then You first need to understand what the stock market really is and learn the basic rules of how the stock market works.
The stock market, also known as the stock exchange, refers to the different marketplaces around the world where any investors, including You and me, can buy and sell shares in publicly held companies: Stocks.
- Everyone has access
One of the great things about the stock market is that it is widely accessible. You don’t have to be ultra-wealthy, You don’t even have to be an adult. For example, I have taken steps to open an investment account for my son since he was born.
In fact, there are no laws that forbid people to start investing in the stock market, unlike for many other investment alternatives such as hedge funds and private equity investments, which are only legally available to qualified investors such as pension funds and insurance companies.
- Invest in business You understand
Never invest in a STOCK. Invest in a BUSINESS instead. And invest in a business You understand. In other words, before investing in a company, You should know what business the company is in.
The world’s greatest investor Warren Buffett was surely not wrong when he said, “What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.”
- Avoid the herd mentality
The typical buyer’s decision is usually heavily influenced by the actions of his acquaintances, neighbors or relatives. Thus, if everybody around is investing in a particular stock, the tendency for potential investors is to do the same. But this strategy is bound to backfire in the long run.
No need to say that You should always avoid having the herd mentality if You don’t want to lose Your hard-earned money in stock markets. So “Be fearful when others are greedy, and be greedy when others are fearful!” as per Warren Buffett saying.
- Don’t try to time the market
Catching the tops and bottoms is a myth. Even Warren Buffett doesn’t try to time the stock market, although he does have a very strong view on the price levels appropriate to individual shares. A majority of investors, however, do just the opposite, something that financial planners have always been warning them to avoid, and thus lose their hard-earned money in the process.
In fact, nobody has ever timed the market successfully and consistently over multiple business or stock market cycles. It is so till today and will remain so in the future. In doing so, more people have lost far more money than people who have made money.
- Invest only Your surplus funds
If You want to take risk in a volatile market like this, then see whether You have surplus funds which You can afford to lose. It is not necessary that You will lose money in the present scenario. Your investments can give you huge gains too in the months to come.
BUT no one can be hundred percent sure. Actually, all what You need to start investing is a little money. Unlike what most people think, it is possible to invest in the stock market with as little money as CHF 1’000.-
- You can earn a good return on investment
Probably one of the best things about the stock market is that investing in the stock markets yields good returns, even for beginners, when done right, of course.
To make it simple, if every year You had invested Your savings in an ETF tracking the S&P 500 index, which represents the 500 largest US companies listed on the stock exchange, for the last 10, 20, 30 years, regardless of stock market conditions, without knowing much more than just stock markets basics; and without doing anything else, and importantly, without selling anything
… then You would very likely have a return of approximately 6-8% per year, beating most investors out there, professionals and amateurs alike.
Let’s say You save CHF 1’000.- per month and invest all of that (CHF 12’000.-) at the end of each year in an ETF tracking the S&P 500 index. After 25 years, You should end up with just over CHF 1 million, instead of the CHF 300’000.- You would have saved if You had never invested.
This is because You would have experienced good average returns over time, paid low fees and most importantly benefitting from compounding.
Compounding means that investments earn a return not only on the amount initially invested but also on the accumulated earnings of previous periods.
- What are the factors that long-term investors must look at while taking an investment decision?
If not investing in ETFs and S&P500, several factors should be taken into consideration by any long-term investor while picking up stocks, such as:
Business model: Undoubtedly, the very first thing that any investor must look at is the business/sector that the company operates in.
Management: The management is another extremely important factor to consider before investing in any company. It is the management that will be behind the future direction and success or failure of any company.
Competition in the industry: The company’s competition is another major factor that You as an investor should look at before buying or not that company’s stock.
Financial analysis: This is by far one of the major factors that most investors already look at. It includes doing a detailed study about the company’s financial position and performance over a reasonably long period of time. This is commonly known as the ‘fundamental analysis’.
Dividend yield: Dividends are the income from shares and regular dividend-paying companies proving that their profits and cash flows are stable enough for them to keep paying dividends each year.
Value: And finally, the last step is the valuation phase. While the business model, management, fundamentals, and market positioning of the company may be the best, if the stock is trading at valuations that are unwarranted, then it is not worth buying the stock!
I believe that investing in shares is all about conviction. If You are not convinced about the company, then don’t stake Your hard-earned money.
- But, where can You gather information from?
You have probably received stock tips and recommendations from Your relatives and friends. However, investors make decisions based on certain factual information. Accordingly, they make future assumptions based on knowing how a company functions and on its fundamentals.
I present here basic ideas of where You can go for information on companies You wish to invest in from proper and reliable sources:
–Annual reports: In case you cannot get hold on the company’s offer document, given that the company has been listed on the stock exchanges for long, the annual report comes in handy.
–Announcements and company press releases: Apart from annual reports, it is the official company documents such as press releases, announcements, and presentations which are released in regular intervals.
–Business dailies and other media: Newspapers and news channels are a great medium for gaining updates on companies. Interviews with managements provide good information on the company’s views, plans and strategies.
- You don’t need to deal only with banks to build up a very well-structured equity portfolio
The widespread belief lets You think that investing in the stock market is something very complicated. And that beginner investors should absolutely rely on the very costly services of hefty banks and well-established financial institutions.
Whereas all You need to know and master are the stock markets basics.
So, even if all world out there, including Your parents, husband or boyfriend, television and the press seem to be determined to make You feel otherwise, successful investing is something YOU can and absolutely must do Yourself to create Your own financial security and that of Your loved ones.
To sum up …
This is a compact introduction to the stock market that I hope You going over these basics will help get You closer to start investing. So, learn to invest the right way, and make it as early as possible, with whatever amount You have.
Ready to get started with investing in the stock market?
LEI is waiting for YOU to concretize YOUR decision!