For those who do not understand the stock market, it can appear to be a daunting and intimidating environment.
However, it need not be that way.
By spending some time on a consistent basis, educating yourself, you too can become a successful investor.
While there are numerous different styles, by understanding the 7 steps below, you will at least be in a position to grasp what is required of you to be successful in the markets 1.
Get Your Finances in Order If you have credit card debt, Stop right now! Before you begin to invest, look to get your personal finances in order first.
Credit card debt is at the root of most people's financial troubles in life.
Do not play the stock market with the sole purpose of paying off debt.
The downside risk is far too great and will lead you to make emotional and subsequently irrational decisions.
2.
What Type of Investor? From the outset, you need to decide what kind of investor you intend to be, long term or short term.
Needless to say, the long-term investor has a much greater chance of success.
Your risk appetite largely determines the types of stocks you buy.
If you are willing to take on a higher level of risk in the search for higher potential returns, you could focus your attention more towards growth stocks.
However, if you are more risk adverse, high dividend paying stocks would be more suitable.
Alternatively, and most advisable, is to have a diversified mix of growth and value stocks but this is entirely up to you.
3.
Open an Account There are numerous brokerages out there providing what seems like the same service.
However, you need to have the discipline to research your options before committing.
When you research the various brokerages out there, be sure to compare commissions but remember, the lowest commissions charged may reflect the service you receive.
Therefore, in times when you may need to speak with a representative, it may not always prove to be a straight-forward task.
Ensure you also compare the various account minimum holdings across your range of brokers as well as any special deals they may be offering to new customers.
4.
Read, Read, Read Reading is an absolute must if you are to be a successful investor.
Source the internet or your local bookstore for books on famous investors such as Warren Buffet, Benjamin Graham, Peter Lynch etc and gain an understanding of their philosophies.
By acquiring more knowledge and by comparing the different approaches used by the different investors, it will enable you to form your own opinion on how best to beat the stock market.
In addition, pick up a few books on the history of the stock market and get a greater insight into how the markets have arrived at this current juncture.
We have witnessed spectacular crashes and booms since the 1900's with some marvellous literature describing in more detail these events.
One thing I always advise with reading is not to try and learn things off by heart.
Simply read, form and opinion, note why you formed that opinion and let the knowledge gradually sink in as you go along.
Too often, we are taught to read and regurgitate for exams, which supposedly decides the most intelligent student/investor.
I am 100% opposed to this so don't worry if things initially don't stick in your head.
Simply keep notes and you can refer back to these when needed.
The best investors will be judged on their profits, not on their ability to recite jargon.
5.
Observe for Ideas Some of the most obvious investment opportunities stare you in the face everyday so start observing in order to form ideas.
Be conscious of every brand that surrounds you and take note of any that appear to be particularly popular.
For example, if you happen to notice consumers are all beginning to drink a particular brand of coffee, eat from a certain restaurant, wear a type of clothing or whatever it may be, be sure to take note of it and investigate which firms are benefitting from this.
These could all offer investment potential.
Of course, you must still carry out the research on these stocks but it is an interesting way to source ideas.
6.
Evaluate your Opportunities After you have identified some companies you think offer good business products, the next step is to get into some proper research.
In order to do this you will need to set out a plan of what it is you are looking to uncover.
Keep the strategy as simple as possible and you can always update as you learn more.
Needless to say, this knowledge comes from reading.
A great starting point can be to find out more about the business owner and the directors.
If you are impressed with them, you can then go forward and analyse the fundamental values more closely.
There are numerous ratios you can adopt in order to determine the liquidity, profitability etc of a business and plenty of things you can look out for in their cash-flow statement to determine their overall strength.
Be thorough in your examination of the company but also remember to keep it simple and uncomplicated.
As time goes by, you can develop this strategy further.
7.
Track your Results Sounds simple but for some reason, many do not track their portfolios overall performance, preferring instead to focus on their best stock and bragging about that.
Remember what I said earlier, the best investors will be judged by their profits.
You are bound to make mistakes at the beginning, I certainly did.
If you are willing to track your stock performance however, making note of reasons you decided to buy or sell a stock, you will soon see what areas you need to improve upon.
Similarly, keep abreast of any earnings reports your company releases, along with any news releases.
Finally, keep track of any dividends you receive or commissions you pay to determine your overall position.
I will deal with each of these steps in greater detail in future article releases but for now, this offers a solid base from which to begin.
If it seems daunting, don't worry, it is not a race and by working through the steps at your own pace, you will arrive at the point where you are ready to invest.
The stock market has provided investors with good aggregate annual returns since the early 1900's.
The fact you are willing to educate yourself on the subject, really is the first step so congratulations.
Who knows, you ay just be the next great investor of our time.