The Stock Market For Beginners: 7 Starter Tips

Posted by Pierre de la Fortune on December 01, 2015 @ 12:01 a.m.

Written by Stock Exchange Secrets Staff

Other pages in this 'Stock Market For Beginners' section of the site look at the kinds of things that a new investor should do to help themselves. However, these were written in essay format and so instead this offers a simple list format of stock market tips.

Here we go...

1. Investing is not a hobby. To big merchant banks, it is a very competitive business. Therefore, you should also treat it as a business. That means understanding your own profit and loss as well as the companies in which investments are made. Once this thought pattern is established, it makes the whole process so much easier. Simply ask, "Will this investment / trade / software / subscription make or lose me money?" Once an answer has been established, a clear course of action will present itself. At first, investing can feel like gambling and many beginners want to learn how to play the stock market, but the real skill starts to come as an investor takes it more seriously. 2. Get some great investment management software. These days, a speedy internet connection and good money management and investment software costs virtually nothing. Why spend the time and effort trying to figure out the best ways to do things when solutions already exist. Ideally, look to purchase two types of software. One will be for personal money management. This can be used for profit and loss and keeping track of the costs of subscriptions, stockbrokers and the like. The other will be used for tracking stock and fund prices, storing company news, technical and fundamental analysis and more. 3. Get an education. Warren Buffett has suggested in the past that every investor should be able to understand basic accountancy principles, an annual report and stock market history. You probably do not need to become an accountant, but being able to understand the scoring system of the game can only help. 4. Learn about money management. Every investor will have the occassional (at best) loser and it is vital that no individual holding can wipe out a portfolio. Understanding asset allocation is vital. Years of talking to people about investments has taught me that there are fundamental differences between the way investors behave. New investors ask for 'a tip' and want to know, "What should I buy?". In contrast, professionals do not want tips. They have dozens of good ideas of their own. They won't be sharing those ideas with you and they will not be expecting you to share yours. Instead, they ask about how you allocate money. "Which sectors and markets do you like and why?" The difference between these approaches is like night and day. 5. Read widely. Getting a wide ranging education in personal finance, corporate finance, taxation, economics and investment theories will help. However, finding areas of the world or business in which you can become relatively expert can help in the process of finding investments. The reality is that in the modern world - especially with the power of the internet - there is very little information that is not in the public domain somewhere. However, the world now has information overload. Whilst the information might be available, few people now have the time to find or understand it. The people who know these things and can 'join the dots' have regular opportunities for stock market investment. Once the basics have been covered and understood, it may be that just one or two hours of reading each week will be enough to keep knowledge up to date. But keeping up to date is vital. 6. Find a good investment service to subscribe to. Many of the suggestions above can now be covered by joining just one stock market service. These services now aim to pick stocks, offer trading and portfolio management software and educational services too. If things go well, then by investing in the stock market picks, the service can be paid for with profits. Though these services are often not 'cheap' they are generally very valuable and can help to make an investor or trader profitable whilst learning the ropes. This is a great way to learn or experience the stock market for beginners. 7. 7. Practice makes perfect. In the investment business, paper trading is how we all start. Pick a couple of companies, make a note of their price, the date, the reason why you want to buy them and then start following the stock. As time passes, the hunch or assessment which made the stock such a great prospect will play out. Was it a good or bad decision? Would buying the stock 'for real' have made a profit or a loss?

This is an excellent learning experience and one that is vital to the long-term profitability of anyone in the stock market. To get the real experience, purchase some graph paper and chart the stock price movements each day by hand. Learn to compare this with the overall movements of the market and a whole new world of investment and money will begin to open up to you!

Before you raise your hand to complain, yes, we know that a computer can track price changes much better than most humans. We get it. But the aim of the exercise is to geta 'feel' for the movements in price and that is unlikely to happen by using a computer program and pressing a button. We are talking here about stocks for beginners, and beginners need the learning experience, not the quick fix automation. Just trust us...

Bonus Stock Market Tip: Everything above is related to how best to invest actively - in other words buying and selling into companies that have been selected by you. But what if you don't have the time, money or inclination? What if the paragraphs above put you off?

In that case, it is possible to invest passively. This means that a private investor puts aside either a lump sum or an amount each month and the money is invested into a fund. That fund contains the savings of lots of other private investors and is managed by a professional stock market investor.

There are a number of different types of these funds (mutual funds, unit trusts, pension funds, ETFs (exchange traded funds) and SICAVs are the best known examples) and thousands of individual funds within each group.

Since these funds pool the money of lots of investors, they can take a position in a much wider number of companies than most individuals could afford. This is known as diversification and has the effect of reducing the risk being taken by an individual.

It also has the added advantage of saving time. Learning how to play the stock market can take many years of study and effort, but being able to understand the basics so that it is possible to select a sector and fund to invest in should take just one or two days of background reading.

If this sounds like a preferable option to you, then it would be wise to find a local investment or financial adviser that has some investment experience to help you make a selection. It certainly ought to be an easier entry for someone that is a beginner to stock market investing.

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