Beginners to Start Investment
A novice investor might ask this question: " What is the most appropriate way for beginners to start investing?". While some beginners have higher risk tolerance than others, I think that we can generalize that beginners are just that; beginners. Therefore, it is not appropriate for beginners to jump straight into nano technology or finding companies who have the next cure for avian flu.
For beginners, it is advisable to invest in index fund while learning more about stock investing. Historically, index fund returned on average 10.5% since World War II. In essence, you are getting paid 10.5% of your capital while you are learning how to invest! There are plenty to learn and beginners shall use this period to go deeper into financial statements, valuation techniques and reading annual reports. At this point, investors should focus on the company that they like to research or industries that they are already familiar with.
For example, if your occupation is doctor, you can start by focusing on pharmaceutical industries such as Pfizer, Merck or health care companies such as United Health. If you work as a mechanic, you might start researching on automobile companies such as Ford, General Motor or auto part suppliers such as Magna International, Johnson Controls Inc. Learning the industry that you are familiar with will hasten your learning curve as you do not have to learn all the jargons that are specificto each industries.
While investing in index fund sounds boring, it does sounds better than losing money. The first step of becoming a good investor is to control your loss. You may look cool when you are investing in the next big thing. However you want to be cool instead of looking cool. The way to be cool is to know what you are doing while minimizing your loss.
Successful investing requires knowledge, time and commitment, discipline and patience, and the ability to develop an investment strategy that is compatible with your personality.
Knowledge
Each individual must consider what he knows when planning an investment strategy. Recognizing your current level of knowledge, and how you will acquire the additional wisdom you need, are all-important factors.
Time and commitment
How much time are you willing to spend monitoring your portfolio? This is a critical question. An individual's investment plan should be based on his level of interest in ensuring personal financial success. The more diversified a portfolio is, and the more complex your strategy, the more time you will need. To be successful, an investor mush map out a strategy that carefully matches his own personality and level of commitment.
Discipline
Although many investors start with an approach that will work for them, the ability to maintain discipline eludes far too many people. This is caused by a variety of psychological issues, led by fear and greed, that tend to dominate predetermined financial strategies. During various stages of a stock market, different investment styles will work better than others. Sometimes a value approach will be in favor. Other times a growth or momentum style to accommodate the market.
Patience
The last trait for successful investing is patience. Without it, your returns will be more limited. Warren Buffett reminds us that it takes nine months for a woman to deliver a baby. Investments usually take more time to work out than most people consider. Once you plan an investment strategy that complements your personality, managing a portfolio should be simple. The challenge will be to follow the game plan and to remain disciplined.
An investor who establishes varying time frames for holding different types of securities will be much less inclined to lose patience in well researched ideas. This type of analysis will also assist the investor from "holding too long," while watching his momentum idea fall out of favor and create large losses.
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