Most people would think that the stock market is a place where rich people put their money. And its probably true. OR maybe because they invest in the stock market that’s why they became rich? The one thing I’m sure though is that, the Stock Market is where, wealth is made (and lost), and has been one of the best creators of wealth for most people. If you want to have an early retirement or even become a full time stock market investor or trader, doing your business anywhere in the world using only your laptop (or cellphone). Why wouldn’t you want to have a slice of that? Why wouldn’t you want to invest in the stock market?
So the question begins “How do I start Investing in the Stock Market?“
And the answer is another question: “How do you want to participate?”
You see, there are 3 kinds of people who may want to invest in the stock market. These are:
- The Independent Investor – people who wants to learn how to pick stocks themselves
- The Outsourcer – People who DO NOT want to learn how to pick stocks themselves
- The Inbetweeners – People who are in-between 1 and 2
The Independent Investors
These are the people who wants to pick stocks themselves and also wants to do the hard work of analyzing each companies. It may be hardest of all the three but it is where wealth is made the most. Its risky but is also the most lucrative.
Most people in this category spends a lot of time reading. Reading books, doing research, reading financial statements and analyzing them, and doing some calculations. Most of the independent investors are self taught and driven. And its a long way ahead. But its totally worth it.
To become an Independent Investor, you’ll need to open a stock brokerage account. Then pick your own strategy like value investing. After that, you’re off to the races.
If you don’t want to put in the hard work, theres #2…
These are the people who “outsource” their investing. People in this category “hire” someone to manage money for them. So these are people who would benefit from investing in mutual funds and ETF (Exchange Traded Funds) where there’s a fund manager who would handle their money.
Do not expect to have high returns on your money when you become and outsourcer. Managers are not incentivised to make you rich, they just want to become a steward of your money, providing return on your investment that match the average. They may or may not beat this average, but like I say, that’s the price you pay for not having to do the hard work on your own.
Its like outsourcing your call center business, you put up an office in Asia where its “cheap” but expect that customers may not like it when they hear the accent not like their own. That business may work, but expect some kind of “ick” factor when you clients come calling in. Its not perfect, but it works.
I’m not saying that if you became The Outsourcer you will automatically underperform the average. My point is, there are really great fund managers out there like Warren Buffett and Peter Lynch. But they are really hard to find. The hard work for the Outsourcer is not to researching stocks but researching the fund manager. If you could find a Peter Lynch and a Warren Buffett to manage your money, you are going to be rich.
To become an outsourcer, you will need to find a good manager with good track record. Also ask about the management fees. And pick the managers with good track record and lowest fees. Shop around for mutual funds by going to your bank.
These are the people who wants to pick the stocks but don’t want to do the research. In a way, they are independent but still dependent on other people to make decisions for them. They outsource something that is most important to investing, the researching and the thinking. In all of the three, this is probably the worst kind. If you could choose, either pick #1 or #2 but not #3.
Not only would you underperform the Outsourcer, you are also more stressed because there’s no conviction in each investments, and therefore you are most likely to buy at the wrong times and sell at the wrong times. Why no conviction? Because you never did the research on your own. And you are forced to have faith in someone who may or may not did a good research. You have to take his/her advice and take a leap of faith. That is not good.
People in this category are people who join signal service. They have memberships where they can look at the person’s list or table of stocks to buy.
If you still want to go this route, I have a few tips for you. Don’t. But if you insists, make sure the person you are following (giving stock signals) is authentic. Authentic in a way that they make their living investing in the stock market. Its so easy to fool most beginners like you, just by reading investing books and regurgitating it to you. But you’re not a fool because you read this post. So make sure you ask the person, how much of their net worth are invested in the stock picks that they are recommending? How are they making a living? Do they make a living investing or teaching investing? Those are two different things. Pick the person who do investing full time and that have their net worth tied to their stock picks. That way, you a looking at an authentic person and a person who doesn’t pretend to know something. Because your lost is also his lost, your interest are both aligned.
Be very very careful on who to follow. There are a lot of fake people and charlatans out there.
To become an Inbetweener, open a stock brokerage account.
So all in all, to invest in the stock market, you first need to think about how you would approach the market. Do you want to invest on your own skills and talent? Or do you want other people to invest for you because you lack the time or skills? Or are you in between?