One of the best assets your money can acquire are businesses. And a good place to do so is by buying company shares in the stock markets. Now everyone wants to make money from the stock market. But it is risky to invest on your own?
Investing is very personal, so there are no straight answers to the questions above. But if you are sure of your job security, have a monthly surplus, and your goals are long term (beyond ten years), then I think investing in the stock markets is a good bet.
The wonderful thing about stock investment is that you only need a little amount of money to acquire a piece of a great company. Even Warren Buffett started small decades ago, but through years of persistent and consistent performance, he is now the richest investor on earth.
It is not my aim here to teach you how to invest in stock markets successfully. I have had my fair share of failures and I am still learning. What I am sharing here is what I think are important stepping stones towards an investment journey in the stock markets.
Develop first an Investment Philosophy
Why is this important? Your investment philosophy is your guiding principle on your attitude and decisions towards your investment. This is important because throughout your investment journey you will face many challenges of ups and downs.
In times of market upheaval and through uncertainty, your investment philosophy is there to help you to control your emotions, shut out the noises and focus on the things that really matter over the long term.
Warren Buffet is famous for having an investment philosophy that consists of just one sentence: “Buy wonderful businesses at a fair price with the intention of holding them forever.” Essentially Buffet believes in buying companies at a price at or near their intrinsic values that can consistently increase over a long period of time.
To develop a personalised investment philosophy, you will require some knowledge of how the markets work and some familiarity with investment principles and practices. The following elements will greatly increase the odds of you investing successfully.
Essential Elements to Stock Investing
1. Training in Accounting, Finance and Economics
You may have formal technical education in these fields, but you should at least set out to learn the basics of accounting, finance and economics. They are the foundation and the start of your investment analysis.
2. Understanding (or a view of) how the markets work
You should start with a view and before set out to invest. Then it must be added to, questioned, refined and reshaped as you proceed.
3. Reading as a building block
Some of your initial views will come from what you read, so reading is an essential building block. Continuing to read will enable you to increase the efficacy of your approach—both embracing those ideas you find appealing and discarding those you don’t. Importantly, it’s great to read outside the strict boundaries of investing.
4. Exchanging of ideas with fellow investors
This can be an invaluable source of growth. Given the non-scientific nature of investing, there’s no such thing as being finished with your learning, and no individual has a monopoly on insight. Investing can be solitary, but I think those who practice it in solitude are missing a lot, both intellectually and interpersonally.
5. Working with investing experience
Finally, there really is no substitute for experience. Every year I have come to view investing differently, and every cycle I’ve lived through has taught me something about how to cope with the next one.
Simply Strategies for Success
1. Buy Progressively
3. Stay Conservative
Is it a good place to make money?
The stock market has historically rewarded investors with average annual returns of around 10%, making it one of the most reliable ways of growing your money. The sooner you invest your money into the right businesses, the longer you will have for it to grow and pay dividends.
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