A Newbie's Brief Guide to Investing Money in the Stock Market - A Structured Approach.
- Understand how stock market really works
- Understand stock market risks
- Recognise Economic Cycles, Market Cycles and Trends
- Understand personal finance flow
- Recognise your account size really matters
- Learn essential investing skills
- Set realistic, achievable and progressive investment goals
- Measure your investing performance
- Grow from your mistakes.
Investing is still a Game of Strategy. The person who knows the rules of the Game and plays it with a better strategy will have better chance of winning it.
Read? Why do stock markets exist?
Read? Where Does The Money In The Stock Market Come From?
Read? Think of Investing in Stock Market as Game of Tug of War
Read? The Bandwagon Theory: A Glimpse At How The Market Really Works?
Read? The Story Of The Duck
Read? Stock Market Is War (4 parts series)
Understand stock market risks
All investments by nature are risky. We must fully understand what are the risks involved and learn how to control risks and mitigate them when it is possible to do so. Control risks in the stock market is not a choice but a strict requirement in order to survive in the stock market. There are too many predators waiting for us to redistribute our hard earned income to them as part of their wealth.
Read? Understanding Stock Market Risks
If you don't understand what are your risks and how to mitigate them, then obviously you are taking too much risks. Repeat after me: Control Risks is a NOT Choice but a strict requirement in investing.
Recognise Economic Cycles, Market Cycles and Trends
Economic cycles, market cycles and market trends existed in the past and will continue to exist in the future.
We have to learn the skills to recognise them as EARLY possible and profit from it. If you meet someone who tell you that you can't time the market, you must stay far far away from them. Yes, you can't exactly time the market; but you must recognise them as early as possible. One effective way to time the market is - Buy Slowly and Sell Slowly!
See it for you to believe it - Market Cycles exist!
Understand personal finance flow
Initially, you should be working hard at your job to earn more income and save more to build up your investing capital. You may want to spend your 1st 15 years working hard at your job and the next 15 years letting your money works harder for you. When your money works harder for you; you can afford to save less and spend more. You will have more time to take of your family and enjoy better family life.
Recognise your account size really matters
The market is War. You can't go to battle with a few soldiers. The minimum formation of soldiers in the Army is a Section of 8 mens. I will strongly recommend a minimum capital of $30K to start with it. A $30K capital account size may provide you with enough opportunity to play 4-6 good stocks instead of chasing after penny stocks.
The market is War. You can't go to battle with a few soldiers. The minimum formation of soldiers in the Army is a Section of 8 mens. I will strongly recommend a minimum capital of $30K to start with it. A $30K capital account size may provide you with enough opportunity to play 4-6 good stocks instead of chasing after penny stocks.
Read? Account size
Learn essential investing skills
"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder
"For the things we have to learn before we can do them, we learn by doing them." - Aristotle
In the stock market, there are too many smart predators going after your hard earned money and you don't want to keep losing your money to them as part of their wealth building. Right?
So you must continue to learn more and more essential skills to stay ahead in the game.
Read? Wise Words Series (3 parts series)
You must fully understand and keep improving on 3M's - Method, Mind and Money.
Read? 3M's - Method, Mind and Money
3M's are exactly what you will need to in order to survive in the harsh stock market.
Set realistic, achievable and progressive investment goals
When you are new to investing, you may want to set low and flat goals for initial years; but for subsequent years you should be setting higher investing goals that are relative to your age and your account size. When you are in 20s and 30s, why set your investing goals like retirees who are fighting inflation. But, these are low goals for young people. Right?
When your account size is small, and once you have gain more investing experiences and become confident, you should be going after capital gains and capital recycling for compounding effect to build up your wealth at faster pace than happily receiving small dividends at regular intervals.
Measure your investing performance
The next most important after acquiring essential skills in investing is to track your investment closely and measure them. Don't ever confuse or bluff yourself that you are measuring your performance when you are actually just doing detailed recording of your investment. When you measure, you will be able to tell exactly how your portfolio is performing anytime in you investing journey. If you can't tell me what is your XIRR now; you are not measuring.
Read? Measuring your investing performance
Grow from your mistakes
Learn and grow from your mistakes in investing. You are certainly to make mistakes and will even made some big mistakes that will lead to huge losses. But, you must be humble and hang your ego at the door when you are investing. The Market is always RIGHT. But, if you keep making mistakes and not going anywhere; it is better for you to stop and seek help to check why you are not learning from mistakes.
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