If you’ve been wondering how you can start to invest your money in the stock market yet you don’t know where to begin, then we’re here to help you.
Investing is a journey and a rip-roaring one at that, it can be a roller coaster at times and can have you really on the edge of your seat. It can also be fun, and very profitable.
Many start investing in stocks young and learn from mistakes. Money lost = don’t do that again. Money made = was that skill or simply blind luck?
Sometimes it’s easier in fact to learn by making mistakes, but the only problem is if you’re a beginner with little money, then losing money by buying the wrong stocks is an unimaginable mistake.
And if you follow Warren Buffett’s advice, his number one and two rules are: Don’t lose money.
What I am saying of course is not that you should try and invest in stocks, lose money on the stock market and then learn from those mistakes. It’s just that so many of us did learn how to buy stocks successfully by buying a stock and seeing how it goes.
Then if it increases in value, look at the reasons why. Were there fundamental reasons why the stock price went up, or is it somewhat a glitch in the market. Too much money chasing too few deals for example can make stocks go up but not for the right reasons.
Learning to invest in stocks through placing “bets” on stocks is not a wise idea and not one that I would recommend to anybody. However it is true that some of the best investors, including Carl Icahn admittedly got started buying stocks not knowing what they were doing.
Carl for example bought stocks in the early sixties while the stock market was booming and anyone, even beginners like himself at the time, earned a lot of money through capital gains on the stocks that increased.
However these so-called gains were not profited from at all, as you will see.
There is a very big difference between making money on paper in the stock market and actually selling your stocks at a higher valued than you bought them to lock in a good profit.
A good example of this is in the crypto investing space. Where people were buying into bitcoin with the idea of holding on until they reached some bizarre number like 1 million dollars per coin!
By holding out they kept their bitcoins all through the peak of the cryptocurrency bubble at the end of 2017. Many selling only now for around $3,000 per coin instead of the $20,000 they could have taken home had they sold at the peak.
What’s worse many of these people feeling very rich on paper went out and bought new cars, houses, boats and all kinds of expensive things they just could not afford. So when the market came crashing down in the crypto space they were worse than wiped out, they ended up in debt.
This goes to show the difference between getting rich on paper in stocks or currency or whichever investment it may be, and earning a profit from capital gains, or dividend payments.
If you are just starting out and beginning to look for ways to invest your money, these simple lessons are very important to understand because they pertain specifically to the stock market.
For example, before you even consider buying any stocks or investing any money at all. You need to know how the stock market moves and why the prices change as they do.
Because the market may not be moving in a way that you expect. You may think that the markets only move through logic. Like a company merges with another and together they pool their resources allowing their fundamental business to improve and make more profit.
That would be a valid reason for more to speculate on an increase in value, resulting in a higher demand for the stock. The more demand there is to buy a stock, the higher price it can demand from sellers to sell.
And the stock market does work like that… most of the time.
However the stock market is also driven by human emotion. I mean remember the people buying stocks are mostly regular everyday people. And as people we are highly emotional, especially when it comes to money!
So as you can imagine many decisions for buying and selling stocks are not based on logic at all. They are based on how someone is feeling at that specific time.
The two main emotions that this comes down to more than any others, are greed and fear.
These are very important to understand because if you can understand how greed and fear factor into the decisions people make when investing in the stock market, you can understand that the prices of shares are not moving in a logical way.
They are moving based on emotion, overall market sentiment at best.
Another factor to add in to these is there are overall trends happening in the stock market all the time. A good example of this is back in 2008 when we experienced the global financial crisis.
Well, at that time, or let’s say a year before circa 2007, there was a lot of optimism in the markets and people had been making money for years. This is what we call a Bull run.
It means the stock market overall is going up and up, everyone is making money, receiving big dividend payments, increased capital gains on stocks, good investing times!
But lurking around the corner is a Bear…
A Bear market is when everything is going to hell in the markets and stocks are dropping out of the sky, plummeting down back to what is probably closer to fair value.
Now this is also not always bad news. Unless of course you are heavily invested in the stock market when a Bear market takes hold and you lose a ot of money. Yes, that’s bad.
However every so often it is very good for the market to return back to earth and true value, because stocks have a tendency of becoming overpriced. When that happens there are no good value investments to be made and it becomes increasingly hard for real investors to make safe returns on their investments.
So whether a Bull market, or a Bear market, they both have their place. They are somewhat two sides of the same coin.
Yet it is very important to know and understand market cycles. If you can understand where we are currently in a market cycle then you will be able to make better investments with your money.
If you only have very little money to invest in stocks and you are just starting out then it is even more crucial that you understand the market timing so you can invest wisely.
Having just looked back to the 2007 and 2008 period, now consider what happened after that time.
Well after a big crash at that time and stock plummeting, the market began to recover losses. Before long another Bull run happened and turned into being the longest bull market in history…
And we are still in it.
However that is both good news and bad news.
First the bad news.
Right now unfortunately is not a very good time to start investing in the stock market. It just isn’t, I’m sorry.
At this time the market is very turbulent and even the best stocks are tumbling down losing investors and company value billions in the process.
Generally some of the best stocks to invest in. But right now?
Well this past week they have lost a combined 70 billion in value! Just think about that.
Now had you invested just last week in these stocks you would have likely lost anywhere from twenty to thirty percent of your investment. In one week.
So even for the best investors they are not looking to buy stocks right now. Arguably the best investor in the world, Warren Buffett is almost completely sitting out of the stock market.
Instead his company, Berkshire Hathaway has over 100 billion dollars in government treasury bonds. Which are essentially very safe investments backed by the government generating around 2% per year interest. About just enough to beat inflation.
This is not an investment strategy of course. Rather Buffett is waiting for the right time to invest.
Likely Buffett can see that we are at the very end of a market cycle and now is the time to sell your stocks, take the money and put it into safe investments like bonds, safe dividend stocks and precious metals like gold.
Ready to buy stocks again when the market crashes and there are many value stocks, which are stocks that are trading at a discount of their intrinsic business value.
A great way, maybe the best way to start investing in stocks is to do this:
- STEP 1: Learn everything you can by studying, reading, learning about the markets, the best investments, understanding the different investment strategies. Things like the difference between growth stocks and value investing. As well as understanding how much money you will set aside to be investing in stocks and getting your savings ready for the best timing.
- STEP 2: Now you have money ready to invest, it is safe savings that can be allocated to your investments, we’re waiting for the best time to start. The best time many will say is “now”, — don’t believe them! It is not true. The best time to invest is a time when the market has crashed and is at it’s lowest point. When people are two scared to invest in the stock market and so the trading prices of shares is low. That is when you should start investing and this is especially true if you have little money and want the best return on investment.
- STEP 3: So let’s fast forward and make believe for a moment that the market has already lost most of it’s value. It will happen. Now a great safe investment is what is known as an ETF, or exchange traded fund.
The best of these to buy is an ETF which tracks an index, like the S&P500.
This is a great investment because the S&P500 is an index of America’s best companies. They are the biggest cap companies in the United States.
What the ETF investment allows you to do is essentially buy shares in every one of those companies.
This results in very smooth gains because overall the S&P500 goes up. There are some years where it goes down, like we talked about, in a Bear market.
Yet overall the market goes up.
So if you buy into the stock market when stocks are trading cheaply and undervalued, you buy an ETF for example one from Vanguard, and you hold it until the end of the market cycle, this is a great investment.
It is a very good investment for people who are beginning and are not ready to start picking out individual stocks. Hedge funds and mutual funds and so on are trying to “beat the market”.
That is to say they are trying to get above average returns, usually looking at the S&P500 index. So for example if the S&P500 increased in value by 10% and they managed to get 11% returns they beat the market by 1%.
However this has been shown again and again over time to be a very difficult thing to do. And by simply buying an ETF you are guaranteed to match the stock market results year after year.
What’s more it is basically zero work.
Instead of having to come up with complex investment strategies and try and figure out what works to beat the market. Instead you buy the entire stock market and are essentially certain to get safe returns over time.
So this is an introduction and the first post in a series that will teach you how to start investing even if you’re a beginner and without access to large amounts of money.
You’ll also learn how to diversify your investments and build a portfolio of stocks that will generate your residual income through dividends, as well as make you money when the stocks go up in value.