Everything You Need to Know Before Investing in the Stock Market

Spencer MechamBy: Spencer Mecham

September 21, 2016September 21, 2016

Everything You Need to Know Before Investing in the Stock Market

Investing in the stock market for the first time can be a scary thing. It may feel a lot like gambling at first, mostly because, in some ways, it is.

That is not to say that thousands of people do not make consistent returns while investing in stocks, but they are the people that have put in the work. One way to skip all the work is investing in Motley Fool stock picks. Just as many people lose money on a consistent basis, mostly because they lack a few bits if important information and advice. Here is everything a beginner would need to know to START investing in the stock market.

Virtual Markets

A virtual market is basically a way to invest in the stock market with fake money. Here is one that works well and mimics the market. Virtual markets mimic the real market in every way. They have the same stocks, and the stocks prices match the prices of those stocks in real-time. They have trading fees, market hours, and the same rules that govern the real stock market. The only difference is the money isn’t real. This allows a beginner to learn some really important lessons that can only be learned through experience, but at a much lower price.

Books

Too many investors thing all they need is a class or two and they are off to the races. Any successful investor can tell you that they have read dozens of books about the stock market. Everything from theories and strategies to history and biographies. Books can help an investor to gain an understanding of what is really going on behind the scenes in the markets, what is really driving those chart patterns to make sense, and what the big players are thinking.

Discipline

The number one reason most investors lose money is a lack of discipline and the use of emotion in trading. Trading must be a numbers game. You absolutely will lose some of the time. Warren Buffet has lost billions in the last few years on his American Express and Wells Fargo investments. He still makes money every year, however, because he understands he doesn’t need to win on every single investment, every single year. That’s the stock market. Learn to develop discipline and eliminate emotion from your trading. The best way to do this is to develop a plan and strategy, write it down, then stick to it no matter what happens. Here is a great article on becoming a disciplined investor from Forbes.

Broker

The broker you choose in the beginning will likely be the broker you stay with for years to come, so make the right choice the first time. If you are only going to be investing with $1,000 in the beginning, you do not want to end up with a broker that costs $10 per trade or you will struggle to ever make gains. Conversely, if you are investing your entire retirement savings, you don’t want to go with a cheap broker that is unreliable and may have server issues at the worst possible time.

Never (ever) Invest More Than You Can Lose

I was recently on a chat board and ended up in a discussion with an investor that had just lost 90% of his daughters college fund, as well as 90% of his entire IRA. He had invested almost the entire portfolio of both funds into one stock that he felt positive was about to announce good news. Instead, the announcement was that the company had failed to get FDA approval for its groundbreaking product and would be starting over. The stock dropped from almost $30 to less than $2 overnight.

While there were obviously multiple mistakes made here, two key takeaways are to never invest money that simply can’t be lost (his daughter was just a year away from college), and always diversify. Don’t let the emotion of greed push you into making an investment decision that you will rue for the rest of your life. Remember, making no money is much better than losing money.

Investing can be exciting and rewarding if done properly and with the right precautions in place. Do the necessary homework and don’t get greedy and things just might work out.

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Spencer Mecham

About the Author:

Spencer is a Brigham Young University graduate with a degree in public relations. He has a passion for startups, recurring income, and digital marketing. Also check out his contributions to LifeHack, The Daily Universe and The Innovation Enterprise<.

2 thoughts on “Everything You Need to Know Before Investing in the Stock Market”

  1. I’d say try out robin hood. For $0 a trade if you arent planning on doing margin stuff and keeping a large cash balance in the account totally worth it

    1. I totally agree. Robin is great in the beginning. It has had server issues at some bad times for me, but I don’t have too much in the account so it hasn’t done that much. Once you get a certain amount of money I would avoid Robinhood because server issues at the wrong time can really hurt.

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