Trading tips for newbie investors

By @chelean on
A man talks on his phone near a new residential compound in Taiyuan, Shanxi province, May 11, 2014.
A man talks on his phone near a new residential compound in Taiyuan, Shanxi province, May 11, 2014. Reuters/Jon Woo

There are hundreds of memes and pieces of advice on the Web that say just saving money in a bank isn’t enough and that it’s high time to consider investing in stocks. Although those are true, it’s also noteworthy to understand that such a thing doesn’t guarantee instant ROI, success, and wealth. Putting money on various publicly held firms’ stocks requires deep knowledge and understanding of the market and how this kind of investing really works. In other words, there are several pitfalls to avoid, as well as some rudimentary things to remember.

Research, investigate

Experts would always say that first-time investors need to do their homework, suggesting they should do a thorough research before risking hard-earned money to a company. This means they should know the legitimacy of every transaction in front of them. Is the brokerage firm a legit one? Is it offering full service or just discount? Does the company selling stocks perform well on the bourse? Does it have a clean and outstanding history?

Fortunately for the modern investors, there are hundreds of websites where they can follow investment news and get investment-focused analyses on specific companies regardless of their size. The likes of Investopedia,  Motley Fool, Yahoo! Finance, Wall Street Journal, and Zacks Investment Research provide these, while CNN Money, Bloomberg, and even Born2Invest offer snapshots of the business market in general, which is essential in understanding how global finance works.

In an article by renowned finance writer Tom Gentile, he said that the most significant thing investors should do is to digest as much information before putting their money on any trading enterprise. It is also very important to read the news instead of simply trusting the brokerage firms since most of them tend to favour a specific market or company. “The ones that I don’t care to look at are brokerage firms because I’m concerned that there may be a conflict of interest there. Whatever you use when looking at company earnings and revenue, you’ll want to use more of a media-based analyst and not a brokerage-based analyst,” he wrote.

Strategy first, emotion last

Emotion is every investor’s enemy, especially newbie ones. Slight changes in the stock market, in a country’s economy itself, of even in the company’s operations, can certainly affect stock prices. For instance, a weak Chinese economy can cause fear for base metals investors since China is the biggest consumer of these commodity items. The same case applies to worldwide product recall of a known car manufacturer. The newbie investor would surely think, “Who would trust a company who can’t even make proper engines?” and then follow it up by a quick, decisive exit, which is not at all a healthy move in the investment game.

The experts always advise patience, which will be much more efficient if supported by long-term planning . This would allow newbie investors to stay focused on their plans amid falling market prices and abrupt changes in a company’s operations. Planning also guides investors to decide wisely if minor modifications in their investing strategy should be done in various cases such as unexpected prolonged bearish prices, unpredictability, volatility, or even unforeseen scenarios such as the death of company executive.

Setting an exit price is also a must. With a carefully planned investment blueprint in hand, investors won’t end up treating investment like a casino game. Indeed, while there’s always time to say “I’m out,” it’s also noteworthy to remember that it pays to have extra cash to start all over again.

Investing according to worth

Every investment plan starts with determining one’s personal worth or value. With this, investors decide on what specific companies they should start scrutinising, how much money they can risk on buying stocks, and what specific investment portfolios they can seriously consider.

Also, each investment strategy is unique, which means that what worked for one might not work for the other. Hence, knowing one’s financial worth could help investors decide whether which investment route to take (e.g. investor or trader). This will also help them know what market is right for them, or what specific investment route fits their investor classification.

For instance, having zero accreditation or an insurmountable net worth will no longer deprive investors of joining an investment enterprise. The United States’ SEC’s recent approval of the JOBS Act Title III (Regulation A+) now allows investors who only make less than US$1000 (AU$1,400) annually to join equity crowdsourcing campaigns from startup companies. With this, new investors who, say, make only US$4200 (AU$5,800) a year can now invest in the likes of Med-X, one of the first companies to be approved by the government to conduct an equity crowdsourcing campaign after the law’s historic amendment.

Choose passion, interest

While it’s evident that the most important thing about investment is making money, investors must also understand that it should be enjoyed, too. Focusing too much on money and returns is no longer fun and sounds foolish. Investors should invest in companies and markets interesting to them.