Investing for Beginners

Many people wonder how to get started in investing. As NIKE would say "Just Do It". There's no time like the present to start learning and the best way to learn is from experience.

The first thing to do is open an account with a brokerage firm. Most times you can open an account for as little as $500 to $1000. You can choose from a full-service broker or a discount firm. If you are new to investing, you may want to consider full-service so you'll have a broker that can answer questions and aid in your education. You can always change to a discount broker later. But don't pick the cheapest one, choose one with a good reputation that offers good service (and preferably one with a good charting service).

Next, plan on spending several hours each week keeping track of your investments and the market. You should learn to read charts and invest in a good book on technical analysis. It is good to buy a stock for fundamental reasons, but if the technicals look poor, it will cause you to think twice about that particular stock. Many people like to trade on paper only, to see how they think they would do if it was for real. First, this obviously does nothing for your wealth and secondly, it does not allow for the emotions that come with trading your own money. You will have decisions to make at times like selling at a loss, or taking a profit even if you think the stock will go higher. With your hard earned money on the line, you are less likely to take unnecessary risks. On paper, none of this matters and you will not be learning the discipline that is so important to trading and investing.

Don't try to own too many stocks. It becomes difficult to keep track of them, and too many stocks will dilute your overall results. If you are trading with $5000 or less, you should not own more than two stocks. With $10,000, 2 or 3 stocks and with $25,000, 3 or 4 stocks. I could go on, but you get the idea. Picking stocks can seem very overwhelming with all the companies that are out there. You can ask others what they are investing in, but don't follow them blindly...make sure you do your own research on the company(fundamental and technical). Read financial papers and websites, listen to a little financial radio or TV. Find out what sectors are hot and look for the best stocks within certain industries. I always like to back up a good fundamental story with a stock chart and some technical analysis. One thing I don't like to do is to follow the herd. Eventually you will find a trading technique that you are comfortable with. Don't expect to learn everything you need to know overnight. There is so much to learn. Just take your time.

One of the most important things when it comes to trading is to know when to cut your losses. It becomes a very emotional decision. After being down on a stock, you may keep thinking it can't go much lower, it will turn around here. The most difficult thing to do is realize that a trade has gone against you and to get out. You should not take more than a 7 or 8% loss on a stock. This will ensure that you will be back to trade another day. If you sell and the stock does go back up, learn to deal with it. No one is right(or wrong) all the time. Taking the emotions out of your investing will be a very difficult thing for you to do, but the more you learn over time, you will be able to do just that. Just remember, there's always another trade!

Happy Trading!