How to start investing in stocks and the mentality to go with it
“When is the best time to invest? How do I start investing? How much money do I need to start investing? Where and what should I invest in?”
I spoke to a few friends who have been working for years now and have amassed a great deal of wealth, but have not invested their money anywhere other than fixed deposits.
Why? It typically falls within the following:
- Fear of loss of money
- Not sure how to invest
- Cannot decide how much to put into investing
- Do not have the “time” to do it
- Never put much thought into investing
My Investing Beginnings
Being someone from the finance and investment field, I started my investment into the stock market within the first year of my career.
It still is one of my favourite investment asset as evident in my portfolio.
I remember how excited I was when I spoke to my broker to open the trading account, filling up the necessary forms and setting up the online account as well. I was thrilled as I transferred my first batch of investment fund into the trading account and I was so fascinated at the greens and reds of the trading screen.
At that time, I had no clue what I was getting into. All I thought about was betting my money on some stock and make some good returns from them. Truth be told, I started off stock investing with a gambler’s mindset. Highly not recommended!
Over the years, I slowly learnt from my investing journey. Sometimes making good returns, sometimes burnt through my capital. Through this, I found a way of investing that suits me. Even now, the learning never stopped.
Take the First Step
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Journey of a thousand miles, begin with a single step
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The investment journey is a long one and everyone starts off as a beginner. If so, then why not start as early as you can to give ourselves time to stumble and fumble whilst becoming wiser in the process.
We can read all the books in the world about investing, but it would do little to help us on the “field”. When investing, it is less of a test of knowledge and more of a test of emotional discipline. Any seasoned investor will wholeheartedly agree to this.
Then, Decide on Investment Style
It is also important to start early so that we can find the style that suits us the most. In essence, we can categorise stock investors one of these two:
- Trader
- Passive or defensive investor
Trader: One who actively studies the market in great depth, takes positions based on short term movements and trades frequently
Passive / Defensive Investor: One who is undeterred by the daily fluctuations of the market and holds a position for the long term
We need to know which one suits us better before we can dive deep into the world of investing. Yes, it is possible to have a mix, but typically one style will be dominant over the other.
Price Movements
It is thus a good time to bring up an important point about investing in the stock market. I am an avid investor in stock markets and I love it. It is something someone can easily pick up, widely accessible and can bring really good returns when done right.
Let me take reference to the FTSE Bursa Malaysia KLCI (aka FBM KLCI), which is comprised of the 30 largest companies on Bursa Malaysia. It is the Malaysian version of the S&P 500 Index, which is the most commonly followed equity indices in the world comprising of 500 large companies listed in the United States.
If I draw a chart of the past 1 year, it could look pretty scary, with a lot of ups and down. Furthermore, we see a huge drop in March due to the Covid-19 pandemic that put the Malaysian economy to a grinding halt. There was definitely a lot of panic selling that happened then.
But looking at recent prices, it has recovered back to the levels before the crisis.
To further illustrate a point, I drew a maximum horizon on Yahoo Finance (1994 – 2020). We could see that whilst there are a lot of ups and downs, generally the market has moved upwards over the years.
What I’m trying to do here is to show you that stock prices do go up and down in the short term (and quite drastically at times). However, we expect that markets will go up in the long term.
With this, I hope it could give you some courage and hope to start investing.
Start Investing for Beginners
Ready to start? Below I list a simple 6-step process will help you get started.
STEP 1: Open a Trading Account
First thing to do is to open your trading account, if you haven’t already. You could open one easily by contacting your banker. I opened mine with Maybank (under Powerbroking2U) as they are my main banker. Recently, they are annoying me as they “suspend” your account if you don’t log in within a month or so.
If you’re from Malaysia, you could open one with Rakuten Trade (Click here to open one), which is a fully online trading house. They do charge pretty competitive fees, but don’t expect to have any remisier or broker who you can ask for advice. The desktop version is decent with basic information for trading. I find the app horrible, so I don’t use it at all.
STEP 2: Fund the Account
Once you’ve opened your trading account, it is time to fund your account. How much to fund depends on you, but let it be the amount that you are willing to lose or not touch for a long time. It could be $1,000 or $10,000.
STEP 3: Create a Watchlist
Regardless of which market you’re from or looking at, I’m sure you know of companies that are listed on the stock exchange and available for trading. Example:
- Malaysia – Maybank, Top Glove, Air Asia
- US – Coca Cola, Apple, Facebook
- Singapore – Singtel, DBS, Jardine
- Hong Kong – Hang Seng, MTR Corporation, Alibaba
For your first watchlist, just list out businesses that you are familiar with and willing to invest in them for whatever reasons. The point of this step is to get a list out.
*Tip: Invest only in businesses that you know and understand
STEP 4: Research
Now it is time to do some study and research on those companies listed in the watchlist to evaluate if they are worthy to invest in.
This topic itself is quite vast and complicated. However, a good place to start you off as a beginner:
- Find recent news
- Look at the historical share prices
- Read the annual reports
- Study the financials (revenue, profit, assets, liabilities and cash flows)
STEP 5: INVEST
Once you have evaluated the list, take the leap and make your first investment.
STEP 6: Monitor and Learn
Once you have invested, it is time to monitor and start learning. From here on out, you need to consciously observe and ask questions to grow your investing skills. Always bear in mind to find out which style of investing is most suited for you.
Now, what are you waiting for? Get going!
