One of the most important steps before making an investment is to select the right type of investment. This choice will be based on your personal requirements and, therefore, varies significantly from one person to another. Any two people will have their unique situations and goals for making an investment, but the common factor for investment is the need for research.
It should also be noted that investment is usually not for the short term, and you should expect good returns only if you are investing for the longer term. There is a wide range of options available on the London Stock Exchange (LSE) to include in your portfolio and this guide to investing in stocks will tell you how what should you consider and before putting your money to work.
The stock market is built around the simple concept of connecting buyers and sellers who wish to trade shares of publicly-traded companies, in essence, it is a marketplace. Every publicly-traded company lists its shares on a stock exchange.
Once a company has its shares listed on an exchange, then anyone can use an online broker account to trade shares. Whether you are an everyday investor or an institutional hedge fund managing hundreds of millions of pounds in client money, anyone can trade.
- Open a stock broker account
To trade stocks, you need an online broker. Every broker offers something different, some brokers are known for their trading platform and tools, while others provide excellent research, and some provide a basic experience but are simple to use.
- Read books
Books provide a guide to investing in stocks as they offer a wealth of information and are inexpensive compared to the costs of classes, seminars, and educational DVDs sold across the web. Because of this, reading books about stock trading can be a great way to get started.
- Read articles
Articles are a fantastic resource for education, you can make use of various reputed websites to enhance your knowledge about investments. It is necessary to read new articles regularly in order to update your knowledge about investments. Searching with Google search is another great way to find educational material to read.
- Find a mentor or a friend to learn with
A mentor could be any family member, a friend, a coworker, a past or current professor, or any individual who has a fundamental understanding of the stock market. A good mentor is willing to answer questions, provide help, recommend useful resources, and keep spirits up when the market gets tough. All successful investors of the past and present have had mentors during their early days.
Despite being “old school,” online forums are still used today and they can be a great place to get questions answered. However, just be careful of who you listen to as the vast majority of participants are not professional traders, and may not even be profitable traders. Heed advice from forums with caution and do not, under any circumstance, follow trade recommendations without consulting an expert.
- Study successful investors
Learning about great investors from the past provides perspective, inspiration, and appreciation for the stock market. Notable examples include Warren Buffett, Jesse Livermore, George Soros, Benjamin Graham, Peter Lynch, John Templeton, and Paul Tudor Jones, among others.
- Read and casually follow the stock market
Reputed news sites serve as a great resource for beginners, and you can look to them for in-depth coverage of the sector. By casually checking in on the stock market each day and reading headline stories, you will expose yourself to economic trends, third-party analysis, and general investing lingo. Pulling stock quotes from these outlets to view a stock chart, viewing news headlines, and checking fundamental data can also serve as another quality source of exposure.
TV is another way to expose yourself to the stock market. Tuning into specific channels and programs on the TV will broaden your knowledge base. Don’t let the lingo or the style of news intimidate you, just simply watch and allow the commentators, interviews, and discussions to soak in. Beware though, over time you may find that a lot of the investing shows on TV are more of a distraction and source of excitement than actually useful, and their recommendations may not yield profitable results.
- Carefully consider paid subscriptions
Paying for research and trade ideas can be educational. Some investors may find watching or observing market professionals to be more beneficial than trying to apply newly learned lessons themselves. There are a variety of paid subscription sites available across the web; the key is to find the right one for you.
However, many paid subscriptions, especially those promoted on YouTube, Twitter, etc, come from individual traders that claim to have fantastic returns and can teach you how to be successful, many of these are scams.
- Cautiously explore seminars, online courses, or live classes
Seminars and classes can provide valuable insight into the overall market and specific investment types. Most seminars will focus on one specific aspect of the market and how the speaker has found success utilising their own strategies over the years.
Not all seminars have to be paid for either. Some seminars are provided free, which can be a beneficial experience, just be extremely conscious of the sales pitch that will almost always come at the end.
But, like paid subscriptions, be vigilant when choosing classes and courses. Most are sold with promises of acquiring valuable knowledge and in some instances, this is too good to be true.
- Buy your first shares of stock or practice trading through a simulator
With your online broker account setup, the next step is to simply take the plunge and place your first stock trade. Don’t be afraid to start small, even 1, 10, or 20 shares will serve their purpose.
If the thought of trading stocks with your hard-earned money is too nerve-wracking, consider using a stock simulator for virtual trading. Online brokers offer virtual trading to practice buying and selling stocks.
One of the most common mistakes new investors make is to buy too many shares for their first stock trade. This is a mistake, so as a beginner, avoid the temptation to take excessive risk. Instead, begin with trading small position sizes, then slowly work your way up to buying more shares with each trade.