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Beginners Guide to the Stock Market

When a new investor or trader starts buying and selling stocks in the stock market, they are looking for stock tips to help them. Unfortunately the average person involved in the stock market are looking for someone else to do their work for them by telling them what stock to buy.

Many of these websites offer to send you their daily picks to your e-mail account. In the e-mails they will tell you that a particular stock is going to have some positive movement over the next couple of days. You must realize that inside trading is illegal and is watched by the SEC (Security and Exchange Commission), so for someone to know inside information and to act upon it by informing other traders and investor will mostly likely and up in federal prison. I’ve subscribed to a few of these website to do some research on these site and their accuracy. I’ve found that these sites do pick stocks that have had gains shortly after being “pushed” by these websites. The problem is that the gains are very short lived and typically will far back to the price they were at before the announcement, if not to a new low.

If you’re looking for stock market tips, you should take advice from experts on how you can learn how to do the research yourself to know exactly what stock to buy and which ones to sell. Before you buy into a company, you must know what kind of condition the company is in. If the company is not doing well as a business, how could the stock go up in value? I find many ways to look for new “leads”, but that’s all they are, leads.

Once I find a company that has a good product or service, I look to see if it will be something the people are looking for. The idea of supply-and-demand is necessary to know if the small company is going to grow or not. I then look at their past three quarterly reports to see how they’ve been doing in comparison to the analyst expectations. I read their financial statements as well as their balance sheets. Is the company growing market share? What is their debt-to-earnings ratio? These are the questions you need to answer to know if you should put your money into the company.

What is the condition of the sector the company is in? Who are their competitors. If you have a new company that is relatively small and their competitor is Apple Inc., it’s a good chance that they will have a tough time trying to become a “big dog” on the streets. I’m not saying it’s not possible, but it will be a challenge for them just the same. Instead look at the companies that are supplying Apple with the parts they need to build the new technology that Apple is making. I find that to be the best way to make money from the Apple effect. Apple has grown too big for my trading style, so this way I can invest in smaller companies that have great potential for growth.

Share Market Tips: The Ultimate Beginners Guide You Should Have Been Given at Birth!

There’s no doubt about it that stock investing is a key part of wealth building. Oftentimes, I’m asked by early-stage investors: “How do I go about investing in the stock market?” Oftentimes, I blithely respond “Don’t, you’re not ready yet”. I say this for impact. I want people to take note and avoid getting roasted by the stock market. I want people to ask themselves the real question behind the question, that is: “Am I ready to invest in the stock market?” Puzzled!? Let me explain. If you’re a stock market beginner, listen up!

Pyramid Investing – What Shape is Your Pyramid?

No, I’m not talking about buying shares in heavily-eroded ancient Egyptian pyramids! A sound investing framework is regularly depicted as a pyramid – investing first in a secure base of cash and cash equivalents (Money Market Funds, Certificates of Deposit etc) then moving up the pyramid into bonds (government and corporate) before you start investing in large-cap stocks and so on.

Most novice investors I know get involved in share market investing too early without having earned the right to risk. They haven’t built a sufficient, secure base to their investment pyramid first and leap-frog their way to the top of the pyramid in pursuit of high returns. Indeed, some make the same mistake by leap-frogging into real estate investment too soon also. Their lack of experience and financial intelligence means they expect to make quick and large returns, but oftentimes instead end up losing a lot of their hard-earned capital. As budding sophisticated investors, we want to avoid these pitfalls. I believe in earning your right to risk. Read on to see what I mean by this.

Earn Your Right to Invest/Risk

Here’s my take on becoming wealthy through share market investing. First of all, if you haven’t saved at least 6-12 months of living expenditure you are not yet ready. Since we are interested in wealth building and learning how to become rich for life (and not just temporarily) then we want to follow a process that enables us to become wealthy and stay wealthy. After you’ve put away 6-12 months in expenditure, you’re now in a position to invest in the base of your pyramid i.e. cash and cash equivalents. After that you can move up the pyramid into the domain of government and corporate bonds etc. Only then have you earned your right to risk. Only then do you have a secure enough financial footing and intelligence to now be in a position to invest in the share market safely.

Investing isn’t a hobby and shouldn’t be treated as one. Hobbyist, novice investors get toasted. They invest too much of their capital, too soon. If their shares soar quickly, they get emotional and greedy and invest more capital with no sound investment basis. They might get lucky once or twice and make large gains but more often than not the opposite occurs. If their stocks plummet they get emotional and fearful and sell up everything… at a loss.

Beware the Dinner-Party Investment “Tip”

Dinner parties and pub talk are great ways for socialising but not so hot when it comes to investment strategies. In fact, you could do worse than take a contrarian view and sell when everyone’s talking about buying and vice-versa. Rather than thinking short term and chasing after the next big share rise tipped at dinner-party tables, I believe it’s better to behave like a long-term investor. For me, this means owning low-cost index mutual funds or exchange-traded funds (ETFs) in the most tax-sheltered manner i.e., using pre-tax money in retirement accounts like 401ks, IRAs etc

It should be pointed out that I don’t think buying individual shares is the central pillar of any smart wealth building strategy. Unless you’ve got oodles of time on your hands and a real penchant for technical analysis I suggest avoiding spending the remainder of your shares investing days, hand-picking individual shares.

If you really must, and you’ve already built up sufficient security elsewhere in your investment portfolio (as per the investment pyramid framework mentioned above), it’s OK to play with a very small amount of capital (e.g. less than 10%) on buying stocks directly so long as you’re thinking long-term and intend holding onto these stocks for years or possibly even decades!

Know Your Fundamentals

There are numerous share market investing trading strategies – scalping, momentum trading, technical trading, fundamental trading, swing trading etc. If you’re a beginner at share market investing than I think the best trading strategies is fundamental analysis. After all, one of the world’s best know and wealthiest investors, Warren Buffet, undertakes fundamental analysis of the shares and securities he buys.

Fundamental analysis requires that you understand the key business financial indicators such as Cash-flow, Earnings and Balance Sheet positions as well as some of the main financial ratios used to value stocks e.g. P/E Ratio, Return on Equity, Earnings Growth Rate, Debt to Equity ratio, Dividend Yield etc. Developing your fundamental analysis skills will stand you in good stead in both the investment and business world.

Where to Trade – Should You Have a Stockbroker?

With the advent of online trading anyone can be up trading within 24-48hrs of reading the latest edition of “The Idiots Guide to Stock Investing”! However, from my experience online trading platforms are littered with financial casualties. Novice investors get torn to shreds not by the online platforms but by their own lack of knowledge, technical unfamiliarity, and the emotions of greed and fear.

Momentum trading through online platforms (e.g. OptionsExpress,, eTrade, SaxoWebTraderetc) requires you to develop Technical Analysis skills and have in-depth knowledge of technical indicators (e.g. Moving Average Convergence/Divergence (MACD), the Rate-of-Change (ROC) indicator, the Relative Strength Index (RSI), Bollinger Bands,Stochastics etc) and identify chart patterns (e.g. Head and Shoulders, Cup and Handle, Triangles, Breakouts etc).

If you do want to jump onto some online trading platform and begin stock trading then it can be a really good idea to begin share trading with a virtual/simulated account. That way you make your mistakes using phantom money.

Even though I’m somewhat sceptical of the average stock-broking firms’ modus operandi, it can be a good starting point for budding investors. Treat the whole experience as an exercise in sleeping with the enemy! Sure, you’ll pay higher trading commissions than you would through an online trading platform and you may or may not make some gains. However, that said, you should at least avoid getting skinned alive and you’ll gain some valuable insights and knowledge from the process.

In Summary:

Remember the words of legendary businessman Donald Trump, “sometimes your best investments are the ones you don’t make”. When it comes to share market investing this saying could be more apt! I highly recommend beginning share market investing when you are ready i.e. after you have earned the right to risk. If you’re interested in learning more about this wealth building concept then check out my website and other articles.

Many beginner guides to share market investing focus on: understanding risk, valuation methodologies, share market indices etc. I think there’s enough info on this already out there so what I wanted to do was offer some structure and some strategic thinking behind your share market investing beginnings. I hope you found the article worthwhile. Thanks for taking the time to read this. If you like what you’ve read and think this could be useful to someone else, please share…share the knowledge, share the wealth!

Learn Stock Market Trading Before You Lose Your House, Not After!

For people wanting to learn stock market trading there is now a wealth of information on line. I know it is not easy to do, but with the correct information, it will not be long before you are trading like the pros. There is a learning curve with every business or opportunity, people try to bypass this, trust me when I say, bypass your education in this industry at your peril!

There are some amazing resources on line and typing in a simple search like ‘free online stock trading information’ in Google will bring up thousands of quality results. Lets not forget hard copy books, they are excellent and can be purchased from places like Amazon very cheaply. With YouTube you have access to literally hundreds of quality tutorial videos on subjects like investing in shares.

We then move into the area of internet trading classes and online demo trading accounts that all help tremendously with ones learning curve. There are hundreds of these on line learning facilities available some of them are very interactive which makes the whole learning process very enjoyable.

It never ceases to amaze me when people are extremely eager to go spend their hard earned cash and buy stocks on line, but do not spend a dime on their education. Your personal education in stock and shares is the priority here. Be sure to invest wisely in your education before you even contemplate investing in shares.

The next area to look at is trading automation. Now there are opportunities out there where you can literally automate everything, but there are also programs like the stock picking services who recommend shares, or programs that assist you in the picking of winning stocks to invest in. Some of these services are excellent and I would recommend you give them a go, but not in the early days, stick to studying and learn stock market tips and tricks before you consider investing in stocks and shares.