A Guest Post by George Diaz
It’s surprising how many people want to learn to invest but, for various different reasons, never take the time to actually learn. It’s a path that takes time, it can be hard, but it is cost effective and definitely worth it. With these 5 tips, I want to help beginners learn about the basics of investing, and to try to make it as simple as possible to begin.
Tip # 1: Learn to invest from the best
It is important to know how to separate the wheat from the chaff. The media, especially the Internet, are full of fake investment gurus who sell infallible methods to invest in the stock market and make a lot of money in a short time. Most, if not all of them, are charlatans who make a living by selling books and courses that are useless at exorbitant prices.
To know who are the best we must resort to the historical profitability of their investments. Warren Buffett, Peter Lynch, David Einhorn, Phillip Fisher, etc. have all proven themselves over the long run and are model investors. One can earn a lot in a year if he is lucky, but the worth of an investor is judged over the long run.
What do most of the best investors have in common? They invest in long-term actions and abide by the philosophy of “value investing.” They don’t do intraday trading, nor analyze graphs, nor do they invest in derivatives with high leverage. They bet on solid companies, and seek to grow their money over the long term, and you should too.
Tip # 2: Read
Books: To learn from the best, you need to read and learn from the best. You can check out this article for a list of 5 books to get you started on investing. In short, I always recommend starting with “The Intelligent Investor” by Benjamin Graham, where the fundamentals of value investing are laid out, teaching us to think like an entrepreneurial investor.
Blogs: From thedailymba.com, to investopedia, and the Wall Street Journal, there are thousands of websites that will help get you up to speed on not only the basics of trading, but educate you on the jargon often used in the industry as well.
Tip # 3: Be Patient
You have to know that learning to invest takes time, a lot of time. Moreover, investment is an art that requires lifelong continuous learning.
The art of investment has a learning curve very similar to that of a martial art. In a short time you can learn the basics, but it takes a lifetime to be a true teacher and the learning process never ends.
Tip # 4: Balance Theory with Practice
Having a solid theoretical foundation is imperative to learn how to invest. However, practice cannot be neglected. It’s necessary to strike a balance between theoretical and practical learning.
For example, you can learn about how to analyze a company through various websites and blogs (like this one), and then actually practice trading through trading simulation games, before you start to invest your own money for real.
Tip # 5: Be consistent
In learning how to invest in the stock market, just as with diets, physical exercise, or studies, consistency is essential. As the Roman poet Ovid said:
The drop of water pierces the rock not by its force, but by its consistency
My recommendation is to establish a road map with specific objectives. For example, analyze a company every month or read a book every 2 months. The important thing is that these objectives are precise, usable and adapted our time and knowledge.
Do I have to have to adhere to all of these guidelines before I invest?
To be sure, the answer is no. Hell, you can star investing now. There are various debates over whether stock picking is more effective than simply investing in a solid ETF, or mutual fund. However, without a solid foundation of theoretical and practical knowledge underneath your belt, you will be flying blind. By at least reading the 5 aforementioned books, spending some time reading up on blogs, and engaging in virtual trading, you will be far more likely to be successful.
Once you are comfortable with the basics, you can then upgrade to more advanced trading involving different investment vehicles such as small cap stocks, forex, options, etc…
But take heart, no one is a master of all these trading strategies. And if they are, they’re probably yet another scammer trying to sell you an “expert course.” Start with these basics, and watch your money grow. Let us know any questions in the comments section.
Originally published at The Daily MBA.