How to Start Investing in Stocks | Share Market Basics

 How to Start Investing in Stocks | Share Market Basics

One of the first things you learn as someone interested in investing in the stock market is that there are different mindsets for different types of market players. That is, "investors" buy and hold while "traders" buy and sell. Although it may be alluring to envision oneself as a saavy market trader, jumping in and out of trades while making a huge killing, the vast majority of people interested in playing the markets are not mentally prepared to undergo the kind of learning curve necessary to become successful market traders.

 

Only those wishing to make stock market investing their business should even entertain the thought of becoming a speculative trader rather than a stock investor. Those who make it their business have taken the time to developed the skills, discipline, and resources necessary to become a successful trader. This is not to say that you may not have occasional successes trading now and then. Yet if you should jump in, you should define beforehand the level of risk you are willing to take and establish definite dollar limits before taking the plunge into a trading mindset.

 

Stock investors, on the other hand, are in the market for the long haul. They look for strong equity stocks that will help build their investment portfolio. They may keep these stocks for a few years or even a few decades, depending on how the market forces trend.

 

While traders endeavor to time the market by selling stocks when they think the market has peaked, and buying back when the trend starts to reverse, the market really isn't as easy as that to predict. As a result of billions of dollars are lost by each year by market "timers" who got it wrong.

 

In recent years, the markets have tended to be more volatile, making it a more profitable environment for those experienced in trading the trends. There would then seem to be a middle ground laid out for those who wish not to take too much risk, yet who are willing to weather the more unstable climates while seeking a better return on their investments. That middle path would be the combination of the investor-trader.

 

Custom would hold that the typical investor would follow six simple steps which have been the hallmark of traditional stock market investing:

 

1. Buy into well-managed companies & hold them for the long term as long as they keep growing.

 

2. Regularly invest some set amounts regardless of short-term price movements.

 

3. Always buying on weakness and what's inexpensive right now.

 

4. Reinvest all dividends and capital gains to put the power of compounding to work for you.

 

5. Diversify by investing in 8 to 10 stocks, more if you can afford it (but not more than you can easily follow), in 8 or more different sectors.

 

6. Start investing as soon as possible. Right now, if you have any kind of capital stake (its size doesn't matter; even a thousand dollars is better than nothing) and are ready to begin building for your financial future. Don't wait for a good time to invest. All times are good times.

 

The investor-trader, however, while placing a portion of his portfolio in traditional growth vehicles to preserve and protect his capital, is willing on the other hand to trade with another portion of his funds seeking a higher return on his investment. While this path is not for everyone, it does tend to lend a bit of flexibility (and excitement) to the traditional approach of the long-term investor. 

 

Yet, by following the six basic principles above, as an investor, you should have little problem building a long-term nest egg and being safely isolated from the inevitable day-to-day trading fluctuations of the speculative trader. If your market mentality is "slow and easy does it" then the role of the traditional stock investor may be the right fit for you.