Investing Basics 101
Okay, so you have your hard earned money ready to start working for you, you've read some books on the subject and you are ready to get into the game.
One problem, with all the books you can read on investing and trading the problem is they give you strategies but never give you the exact stock to pick. I know for me, with so many stocks it becomes completely overwhelming and I have no idea where to even start. That's where a screener comes in hand.
The old rule was to only invest in companies you understand. You shop in stores all the time, online and offline, you know tons about these companies, a good place to start looking for stocks is there, in what you already shop in, you can look in these industries for stocks.
The way I personally pick stocks is to set up a stock-screener and start typing the symbols in a word document, my intuition picks up on a few and those are the ones I invest in.
Honestly I have no idea what these companies do, what their balance sheets look like; most of the time I can't remember what their names are, but just watch!
A stock-screener is used to see only certain stocks that meet your criteria, I set my screener to bring me stocks trading from $0-$10 and have a volume of 100,000+ for easy liquidity.
I guess another thing you should know is what type of investor are you, and what types of stocks will you be investing in. Are you buying and holding, trading, creating income and growth? As far as stocks are you sticking to one sector, are they penny stocks, are they index funds? You should know all this just because it pays to know.
I'll tell you my type, I am a growth and income investor, and I invest in mainly penny stocks (stocks trading under $5). Penny stocks have huge growth potential, shooting up 5% a day, this is how I am able to achieve my 10% returns a month.
I now want to explain to you the psychology behind investing, this is from the Intelligent Investor by Benjamin Graham, in two words, Mr. Market. Mr. Market has his mood swings, Mr. Market goes up and down and up and down, but we are not concerned with Mr. Market. The way I see it is two things, set your sails and trust your picks.
When you intuit stocks remember you have no control over the markets behavior, don't act like you have any, act as if you have no control and you will feel better.
A better way to explain this is to give you my notes:
Benjamin Graham - The Intelligent Investor
You want to buy stocks that you can reasonably expect will be worth more later
You need to understand that stocks have different levels of volatility and velocity of price movement.
Determine what degree of risk you can live with and afford. Focus on creating a stock picking strategy that is designed to preserve capital and control risk. You need to make sure to "stay in the game!" If you do that making money should take care of itself.
One of the worse mistakes new traders can make is to “just start trading” and “see how it goes.” This is “gambling” talk. You need to analyze and calculate, not gamble.
NOTE: I don't really analyze stocks, I let my ancient calculator (intuition) do that for me, it doesn't hurt to know, I try to be as logical as possible as far as strategy, see below.
If a company's results surprise (are better than expected), the price jumps up. If a company's results disappoint (are worse than expected), then the price will fall.
The only thing we do know is that stocks are volatile and can change in price extremely rapidly.
Remember, it is investors' sentiments, attitudes and expectations that ultimately affect stock prices.
Watch, study and learn that one stock. Each stock has its own personality and characteristics. You need to understand these “habits” to anticipate the right moves. Study the charts at numerous time frames - intraday, daily and weekly.
Investing is not about other players, it is about you
Tony Robbins - Money
There are only three tools for reducing your risk and increasing your potential for financial freedom:
Security selection - stock picking
Market timing - short term bets on the direction of the markets
Asset allocation - your long term strategy for diversified investing
Alright so I think I gave you pretty good insight on how the market works and where to start, it's still complicated to me, but I have no problem flipping stocks, it's getting what's in my brain out into the world. But also remember to be a lifetime student to this craft, it only gets better!
Chris