The markets run day and night, worldwide. Every second the prices change, driven by a never-ending stream of news and the millions of decisions of all kinds of investors. Millions of dollars and euros exchange virtual hands every second.
This basic premise is what most visitors to my blog will already know. So why yet another post about it? Because I believe it’s worth repeating. Especially as I distinctly remember from conversation with friends even this basic knowledge is easily forgotten by people and they fall back to their primal fear of the unknown. Many people stay away from the stock market because of this. Most lack basic knowledge of the financial markets and, perhaps because of the prevailing misunderstandings about investing.
Those who already ‘took the opportunity’ often did so with the wrong approach and ditto results. The bad reputation the market has runs deep.
What is important in the stock market? The truth is simple: 99 percent of the daily stock market news is useless to invest properly. All that data produces a lot of noise. At best it is amusing, at its worst, misleading.
Follow this rule: ignore the bulk of the daily stock news and forget that you need to keep an eye on the markets every single day.
- Above all else, a good investor must know what he buys and what the true value is.
- Have patience a lot of patience. Patience determines your return.
- Don’t jump in blindly buying or selling.
- Keep It Simple, Stupid or KISS for short. Don’t make investing harder than necessary.
Stocks move higher, lower, higher
In theory, everyone is able to invest in stocks and get a positive real return out of it that, in the long run, gives a much larger return than just keeping it on a savings account. The question you might be asking is if it’s really for me?
The answer, yes. Depending on the period in which you can miss a (part of) your money. Shares only pay off their high yield if you invest them in the long term. Read: over a period of five, but much better ten years or longer.
The economy and the stock exchanges function according to cycles, with high and low economic activity. Those two follow each other perpetually, but the turning points cannot be predicted. Moreover, investors often behave very unsteadily. They sometimes cause stock prices to drop very low and sometimes very high. If you do not go along with that, you can get amazing returns.
As time goes on, the price of shares will reflect much less all that temporary noise and instead reflect the fundamental value of the company behind said stock.
Either way, it’s best not to start investing in large sums. This action can be considered one of the largest mistakes rookie investors can make. It’s best to start out slowly and with a minimal amount you are comfortable with.
In conclusion, there are really only three base conditions you need to take into account when you want to invest in stocks:
- You can miss a part of your money for a longer period.
- You can live with the fact that the value of your equity portfolio can fluctuate considerably and can even report losses in the early years.
- You follow the aforementioned key principles.
In the next part of this guide I will elaborate on these key principles so that you can correctly and safely invest in stocks and beyond.