Heard of buy low, sell high? Simple right? Most people starting out investing in the stock market are told to follow this motto.
But not so fast. For every investor who has made money there will be someone who has lost money, as most beginning investors do the opposite of buying low and selling high, they actually buy high and sell low. So, if you have some spare money and you want to invest, how do you avoid making these mistakes?
Before you even start putting a penny to ‘work’, do ask yourself a few key questions:
- Can you afford to lose the money you invest?
- Are you willing to read and do some research yourself? (Taking investment advice from friends alone is not going to get you very far).
- Do you have a ‘cool enough head’ to watch the market go up and down, without panic-selling or buying?
- Are you an optimist or do you see problems and hurdles everywhere you look?
If your answer is no to the first two questions, do not think at all about investing money yourself and leave it to others. But, even if your answer is yes to the first two questions, but NO to questions 3 and 4, investing is likely not for you, either, as the stock market may cause you too much stress.
But assume you are a yes person in this case and you can’t wait to try your hand at investing. What should be your next steps?
Your first action will be to open an account with a broker – note that parental consent is required for anyone under 18 –. Brokerage platforms such as Interactive Brokers, Saxo Markets, eToro, Fineco, Square and Revolut (the latter for now in the US only) offer simple and easy to use investment accounts. Before making your choice, do compare platform fees as well as the fees for each trade. A few percentage points may seem nothing when you start, but over time you may end up paying unnecessary cash to your platform, so the lower the fees the better.
Once you are ‘on’, the next question is where and with what stock(s) do you start? A good place to begin your search is to look at where and how you spend your money. What brands do you like and who owns them? For example, do you wear Nike (ticker NKE); eat Krispy Kremes (ticker DNUT) or Shake Shack (ticker SHAK)); do you buy Off- White (ticker MC.PA)? Do you use Roblox (ticker RBLX)? Do you have an Apple iPhone, iMac, iPad Pro (ticker AAPL)? Watch Netflix (ticker NFLX)? Put brands you like on your very ‘first’ stock wish list.
Because the things you buy, eat and use on a daily basis are often provided by publicly traded companies you can invest in. How about being a customer of AND an investor in companies you like and use? Your much-loved brands may make attractive investments.
Make a shortlist of names you like and research your favourite companies – look at their websites, their management teams, their mission, their numbers (revenues, expected revenue growth, profit margins, free cash flow) and their total addressable, geographical markets. Are they profitable? Can they grow more? Are they innovative? Are they better than their competitors?
Follow your shortlist closely for a while – before buying any stocks on it. Try to understand what moves the stock and the wider market. Doing so is like an exciting real-life lesson in economics and finance and will make you feel engaged with the companies and the markets they operate in. The ‘live’ market prices of these stocks will be provided by your platform during market opening hours. You can also check live prices on the websites of the various stock exchanges or on apps like investing.com or seekingalpha, which will give you also a lot of relevant company news and financial information.
Once you feel that your shortlist has been well researched, you may decide to convert a stock into a real investment. And once you are ready to buy a certain stock on your list, build your desired position (amount of shares you want to hold in one stock) in small ‘doses’. It will leave you some spare cash to buy more shares if the stock moves. Once you are ‘in’, do follow the company’s news and, importantly, keep a long view, a cool head and do not fret too much over daily market movements. You will come out fine in the end.
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