Investing is a wonderful journey where you literally make money while you are sleeping if you are doing it right. You may see news or hear about people lost all of their savings in buying stocks / went into bankruptcy / left a huge debts with brokers.
Many people think that investing or trading is very risky and complicated, and they are afraid to lose their hard earned money. This will very likely to be happened if do not have proper risk management, plan, knowledge and listen to the news/analyst/others blindly.
The great news is, you don’t have to be a professional investor, financial analyst or getting a degree of finance to become a profitable or a multi-dollar investor. Everyone can invest!
Especially if you are a newbie, you are more likely to get lost and do not know where to start.
Don’t have to worry, just remember to keep investing simple.
Let me share with you a few investing steps.
Questions to ask yourself before you start to invest......
Investing in a stock is like owning a company’s business. Before you plan to put your money into investing in a company, there are a few important things that you need to know (never skip these!) before you start your investing journey:
Everyone has their own purpose or goal for their investment. Beside focusing on getting rich fast mindset, investment can also provide quality values (being wealthy)
My investment purpose _________
- Improve lifestyle
- Fund for education or business
My investment goal _________
- Achieve 20 – 30% or more profit growth each year.
- Make up to 6 – 12 months emergency fund.
- Full amount of education fees.
- Use my bonus or incentives payout to invest
- Earn additional side hustle income to invest.
- Allocate 20% of my income for quarterly investment.
There is no specific minimum amount for you to start investing and it is also depend on the brokerage you choose. However, small size account can be challenging which you can only but 1 or a few unit of the stocks whereby the commission fees may eat up majority of your trade.
You may check out more on about brokerage here https://www.stockbrokers.com/guides/features-fees
I am using TD Ameritrade and Interactive Broker for my investment portfolio which I find them reliable.
Find out more about selecting a broker.
Instead of listening to others or seeing the news to search for a stock to invest (which you may not have any idea about the business), there are a few practical ways to find stocks that you will be confidence with for your long term investment portfolio that you think it can give you 2x or 5x or even HIGHER growth in the next few years.
1. Look around your surrounding to identify brands or companies that you commonly use or see in your daily life. Example: Facebook, Google, McDonalds, Nike, Apple, Adobe, etc……
It will be better if you are a customer of the brand which you can instantly know that if the company is doing well or not in general.
2. Brand/company that are popular but you are not the customer of the brand. There are 2 easy ways you can find out instantly: (1) Ask your friends or family who are the customer of the brand (2) Do research about the company of the brand.
Example (Myself): Tencent, Microsoft, etc….which I am not a customer of the brand but these companies are popular or commonly see in everywhere.
Investing is a long journey where you will see a healthy growth in your portfolio in 3-5 years or even 10 years time.
However, people tend to lose money from investing in many reasons:
1. Panic selling
2. Listen to others/news blindly without doing their own due diligence.
3. When the company is no longer performing well.
4. Having a gambling mindset. (Most dangerous)
In order to achieve consistent profits in long term, constantly do research about the company by understanding the business future direction and financial reports to find out the company performance for potential future growth.
Learn more in identifying fundamentally good company stocks.
Choose your broker to open a trading account and set up fundamental studies tool in your trading platform.
Understand the fundamental and technical analyses
Look for fundamentally good companies.
Identify fundamentally good stocks to invest.
Are those companies that I want to invest in fundamentally good?
Enter & exit rules
Is the stock currently undervalued/overvalued? or is it a good time to enter technically?
Things you need to prepare before you start to invest:
1. Open an account with a broker
2. Setup indicators on your charting platform for technical analysis
Things you need to prepare before investing:
1. Open an account with a broker
Choose your account type and knowing the trading fees
The common ones are margin account and cash account. The differences between the both is that a margin account the broker loan you additional cash to trade more than your cash vehicle available. Cash account allow you to trade with funded cash that are available only.
For example :
If you fund in $5,000 into your margin account, you are allowed to trade up to $10,000 (depending on brokers offering).
If you fund in $5,000 into your cash account, you are allowed to trade up to $5,000.
For a margin account, there is a borrowing fees that you need to pay to the broker if you want to trade more than your cash available.
To keep things simple at the beginning, you may consider to choose a cash account which you invest or trade with the cash that you funded in and you don’t have to worry about if you trade more than you could.
Every broker offers different structure of trading fees and rates. There are brokers offer a fixed commision fees per trade or per share.
It is advised to find out more from your broker about account type and trading fees they offered.
You may also check out from website below about brokerage comparison.(https://www.stockbrokers.com/compare)
Paper-trading (Demo Account)
Some brokers offer paper-trading (stimulated trading) platform for traders to practice trading using fake money before risking real money in live markets*.
*Risk only what you afford without hurting you emotionally.
2. Setup indicators on charting platform for technical analysis
Recommended Indicator for Investing
Moving Average : 50ma, 150ma, 200ma
Recommended brokers for stock trading.
TD Ameritrade (https://www.tdameritrade.com/)
Interactive Brokers (https://www.interactivebrokers.com/en/home.php)
Stock prices are driven by supply and demand.
- Market is bullish when there are more buyers than sellers, this is when the price tend to push up and move upwards.
- Market is bearish when there are more sellers than buyers, this is when the price tend to drop and move downwards.
In short term, stock prices are driven by market noises (news/rumours) and emotions (where people are being greedy/fearful) about the company, market and economy current status. However, the momentum of the price action may not fully reflect on the true value of the company stock.
Long term investors focus on the fundamental analysis which only invest based on the value of the company and ignore any short term noises and emotions. Beside, investors may also see opportunities to add more shares when
In general, fundamental analysis is used to find out the intrinsic value of the stocks and technical analysis is to study chart patterns and price action.
Combination of (1) fundamental analysis and (2) technical analysis for successful momentum investing.
Timeline: Long term (Months to Years)
Returns : 10-30% pa
Win Rate : 90-100%
Objective: To find out the intrinsic value of the company’s stock worth (fundamental analysis) and knowing when to buy or sell (technical analysis).
Identify fundamentally good stocks with great busineses
Fundamentals of a good company:
- Highly valuable business leads to higher stock price or dividend payout over time.
- Consistently increasing in sales, cash flow and earnings, and greater ROE.
- Have sustainable competitive advantages such as high switching costs, high entry barrier, business monopoly, cost leadership.
- Greater assets than liabilities.
- Stars /and cash cow companies.
There are more than 20,000 stocks traded in the US market alone.
Choose those stocks that you are the customer of the company.
As a start, it is advised to choose a company stock that you are familiar with the brand or company first. Companies that are well-known globally usually have higher trading volume and larger market cap.
Choose stocks from Index/Exchange
- NASDAQ (Tech Stocks)
- NYSE (common stocks listed on New York Stock Exchange)
- Dow Jones (blue-chip companies)
- S&P 500 (large cap stocks)
- Russell 2000 (small companies)
Choose to invest in ETF
After finding the intrinsic value of the company, it is also very important to find out when is the best time to buy using technical analysis.