There are few things more exciting than making your first stock trade. I remembered mine six years ago, the first shares I bought were Twitter, and I got so overly excited when I saw the price go up I thought I had gotten the hang of it immediately.
I was going to be a hedge fund billionaire.
But then disaster struck in the price dropped, and I sold it at a loss because I was afraid.
Thankfully I have learned much since then, and I went on to double major in Accounting and Finance in college; I worked in wealth management for a little while, and now I write about Investments for my clients.
I’ve also learned to make a plan and stick to it and that I am not a great day trader.
Investing used to be a mysterious and exclusive activity for Wall Street professionals and high-net-worth individuals.
The Paradigm has shifted, and more Traders than ever have access to the capital markets because of services like Robinhood, which revolutionized trading thanks to their zero Commission trades.
Robinhood effectively levels the playing field because until then, most brokerages charge five or $10 per trade, so you had to be pretty sure of what you wanted to do; otherwise, you would be just blowing cash on commissions, which would quickly eat into your returns.
Since more people than ever are piling into the stock market, there is also more stock market distractions than ever before.
I follow around 30 Instagram accounts dedicated to finance and stocks, I’m on 10 or 12 email newsletters, and I read the Wall Street Journal and keep up with CNBC, among others.
What I’m getting at is a ton of information thrown at investors, and if you don’t understand how to organize it and what to listen to, you’ll probably drive yourself crazy every time you want to make a trade.
Should I buy it? Should I sell it? Was it the right investment? What did I know that I don’t? Are all very familiar questions to investors because that’s the name of the game.
Today I want to provide a framework of how to sort the copious amount of information you receive into an understandable and easy to digest method.
Make a Plan
Before you spend any money on shares, take some time to develop a plan. Investopedia has a great introduction to the stock market, including some history trading advice and the different types of orders you can use when buying and selling stocks.
One of the first things you should do is identify how much money you are willing to invest and that you are willing to lose all of it without impacting your financial health.
Some people like to use the stock market the gamble, which is fine if you know that you are doing.
But if you want any long-term success and you want to be an educated investor, you should write down how much investing how much you willing to lose and what percent of your account you are willing to invest in each trade.
Some people say no more than 1% of your account should be in one trade. Some say ten percent; the point is you need to decide for yourself.
Set Good Goals
The next part of your plan should be to set good goals for yourself.
A first good goal could be to identify a company you like, whether it’s some clothes that you wear or a car that you drive or a computer you have, and buy some shares of their stock.
“Investing in what you know” is a very powerful and understandable style of investing because if you are wearing shoes or using certain toothpaste that you like, chances are the company that owns that product is publicly traded.
You don’t need to know about accounting principles to understand that they make good toothpaste and probably sell a lot of it.
The next type of goal you should set would be where do you want to see yourself as an investor in six months, one year, two years, ten years, and so on from now.
If you want to make 100% a year and double your money every few months, then you probably set some more realistic goals; otherwise, you’re just asking for total burnout, and you’ll probably wipe out your account.
You could say that you want to have a diversified portfolio in four different industries like manufacturing, tech, pharmaceuticals, and financial services or something like that.
Identify Your Influences
Until now, we have talked about internal strategies in what you should do with your account, but once you make your first few trades, you will probably want to do more research.
If you search “best stock trading strategies,” you will get flooded with results from all over the trading spectrum.
you’ll have the Warren Buffett value type investors who are looking for continuous long-term growth, you’ll find growth investors who invest in companies like Tesla and square for rapid growth, and you’ll find your Wolf of Wall Street types traders that likes to bet on penny stocks and other speculative companies.
I think it’s important to understand the different trading styles because if you only listen to one, you will shut out a ton of valuable information.
You don’t need to adhere to all four styles equally, but you should understand why one investor might love a stock while another might hate it.
Once you find a style that you like, try to identify the thought leaders in that area. Investors like Paul Tudor Jones, Bill Ackman, Warren Buffett, Ray Dalio, and Ken Griffin all have different investment styles, but they are all very successful.
Improvise, Adapt, Overcome
Finally, once you have established some goals and understand your trading style, you are free to experiment with different styles, different Industries, and even alternative investments like derivatives or cryptocurrency, Equity crowdfunding, or real estate.
My objective with this article is to help you get calibrated as an investor and understand how to decipher the investment news that is undoubtedly coming your way.
Nobody knows what’s going to happen in the markets. Still, suppose you can sit comfortably in your knowledge and discern what angle somebody is talking with you. In that case, you’ll be much better prepared to invest intelligently instead of treating your trading account like a roulette wheel or slot machine.