THE STOCK INVESTOR
The most common character type. There are other types of assets, but stocks are usually the first thing people think about when investing.
WHAT ARE STOCKS?
Stocks are parts of a company. When you buy a stock, you own a piece of that company and you become a shareholder.
STRENGTHS
Low barrier to entry
Generally highly liquid (easy to buy and sell).
Not as time-consuming compared to other assets like real estate.
Zero fee trading using certain platforms.
WEAKNESSES
A low barrier to entry means people might not do proper due diligence.
Certain stocks can have massive volatility. The ups & downs of the market might not be for everyone.
Emotions can certainly get in the way when you research poorly.
TIPS
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"Buy on fear, sell on greed" (Warren Buffet). Buying low and selling high is not quite that easy. We are emotional creatures and as such, most people end up doing the exact opposite, which is “selling on fear, buying on greed” (buy high, sell low).
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"Risk does not necessarily equal return. Work eqiuals return" (Benjamin Graham, Warren Buffet's teacher). Do your homework, do the work.
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"Diversification may preserve wealth, but concentration builds wealth" (Warren Buffet). Stay focused.
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The only way you will learn is to get exposure and see how it feels. Learn the psychology of the stock market.
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Invest in what you know! What you do every day gives you an edge.
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There is a common misconception people have — that the stock market equals the economy. Incorrect. The stock market and the economy are two very different things. The stock market can be irrational, not necessarily reflecting the economy.
Actionable Items:
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Build a stock watchlist. Yahoo! Finance is a good start to build a watch list.
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Watch the video below
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Read "The Intelligent Investor" by Benjamin Graham
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Just do it! You will learn the psychology of investing by actually experiencing the ups and downs of the market! Take notes and keep a journal on why you bought / sold a certain stock at that time.