How to Get Started in the Stock Market

Some basic guidance from a seasoned investor who is also a financial and investment planner.

Steps

1. Try to understand why you want to invest. This is the hardest thing - looking at yourself.
   
2. Search for an area where you hold some intellectual strength. It is tough enough to make money in the markets at the best of times, so why disadvantage yourself by investing in things that you don't understand? You will have areas of expertise that fund managers don't. Use that advantage if you can. Warren Buffett describes this as his 'circle of competence'.
   
3. Do plenty of research. Then do plenty more! There is more valuable information available online than we can possibly imagine.
   
4. Learn to think independently. This is the biggest skill you can learn towards becoming a successful investor.
   
5. Don't forget about dividends. Studies show that dividends make up most of an investors return over the long term. Find a way to reinvest those dividends for improved returns.
   
6. Look for investments, not gambles. Learn to understand the difference.
   
7. Consider a long-term perspective on your investment portfolio--start by building cash in your account in a money-market and then by gradually building a portfolio of mutual funds. During this time read as many books and financial magazines as possible and then start slowly with small amounts in individual stocks building a conservative portfolio before venturing into speculative stocks.
   

Video

Don't hide in a cave when the market is down. Find stocks that will pay off when the bull makes its return.

Tips

• The stock exchange is rarely a place where anyone 'gets rich quick'. Sure, some occasional stocks and shares will rise quickly making their owners money, but rarely will you become rich. Bear in mind that if an investment doubles in one year (which is pretty rare) you needed to be already wealthy to make a lot of money. If you invested a thousand, you will have just 'made' a thousand. You aren't wealthy or rich yet.
  
• Investment risk is lowered by knowledge. Every time. If you are buying shares on the stock exchange, what does the seller know that you don't? What do you know that the seller does not? You can bet your life that the buyer or seller opposite you in any transaction has done some serious research. If you don't do yours, who do you think will win? You or the market?
  
• It might help to find areas in which you have useful knowledge already. Either that or decide on an area and slowly become an expert. For example, if you worked in a bank for 10 years, you must know something about banking. When you read an annual report from a bank, do you laugh and see through the waffle or does it make real sense? If you can see through the waffle of some far off CEO and CFO, you can start to compare the relative prospects in the same market of competing firms. Hey - that could be an opportunity!
  

Warnings

• It isn't easy. If everyone could become a billionaire by investing, Warren Buffett would not be famous. It takes time, study and effort and most importantly - independent thought. Not everyone has the will or stamina to carry that through. Who doesn't suffer setbacks and confidence knocks?
  
• Though it may be a 'hobby', it isn't 'fun'. The world of investment is dominated by investment banks and their bankers. They do all the big deals, float companies, issue bonds, trade stocks, bonds, currencies and commodities and make lots of money. They employ some of the world's brightest young MBAs to figure out new and improved profit making ventures. They do all this because it is a business, with real money and real profits. Nobody is playing around.
  
• If you want to be successful, you too need to view it as a business. Here is big tip number one: if you are interested, go and do some reading about Benjamin Graham. Buy his books and digest. It will take a while, but it is the proper place to start. It was Ben Graham that first coined the idea successful investment is businesslike.
  
• If you really want to do well in investment on the stock exchange, then you need to approach it as if it were your own business. A part-time business perhaps, but still a business. That also means taking your information sources seriously. There are many portfolio tracking systems online, some free and others require monthly payment - get registered to one! There are magazines that follow and report on stock markets and shares each week - subscribe to one!
  

from wikiHow - The How to Manual That You Can EditA


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