Want to trade stocks in college? 5 tips for getting started

I started researching investing when I was 15 and started building an investment portfolio the year I started college. During my college years, I learned to manage my investments without compromising my studies. Drawing on this experience, I offer five tips to help student investors get the most out of their college years and their investments.

Key points to remember

  • Be aware of your motivation to invest before you start.
  • Knowing the psychology of investors will prevent you from making bad investment decisions.
  • Consider your schedule before developing an investment strategy.
  • Use the skills you develop in school and apply them to your investment strategy.
  • Connect with people interested in investing.

1. Ask yourself why you want to be an investor

Before looking at how to invest, it is important to ask yourself why you want to invest. Contrary to what popular culture might have us believe, successful long-term investing takes patience, hard work, time, and psychological discipline. You’ve only been in college for a few years and it takes serious effort to perform well academically. Ask yourself if putting your limited time and energy into investing is the right decision for you. Balance it against other major commitments you might be pursuing, such as completing a second major, learning a foreign language, working for a professor, doing internships, or being involved in sports and community groups. While it’s possible to do many of these things on top of your investment and college education, there are limits to the commitments you can reasonably keep.

Different investors have different motivations. I know of an investor whose goal is to fund the education of 1,000 children. Others are motivated by simpler goals, such as a desire to build financial wealth for themselves and their families. My own long-term goal is to develop a philanthropic fund to support essential services in my hometown of Vancouver. Whatever your goals, having a clear idea of ​​why you want to be an investor will help build your resilience and long-term success.

In times of financial crisis, it is tempting to sell your investments at exceptionally low prices to avoid further losses. Similarly, in times of consistently high yields, it can be difficult to resist buying overvalued securities whose prices continue to rise. Seriously think about why you want to invest will encourage you to stick to your investment strategy through good times and bad.

2. Beware of investor psychology

As investors, our mental habits can be our greatest ally or our greatest enemy. As mentioned above, many investors fall victim to the temptation to buy high and sell low, a recipe for financial disaster. This temptation is often aggravated by social pressures. As investors, it is inevitable that we will have doubts about ourselves and fear that we will miss out on the returns of other investors. However, this trend must be resisted to avoid the temptation to seek short-term gains.

College can be a particularly challenging environment in this regard. At my college’s new student orientation day, the president of the student union gave a speech in which he urged students to approach their college years with a healthy dose of FOMO — the fear of missing out. Even then, it occurred to me that this was very bad advice for investors.

One of the best ways to prevent yourself from making bad investment decisions is to educate yourself about the nature of investor psychology. Two of my favorite books on this topic are “Animal Spirits,” written by Nobel Prize-winning economists George A. Akerlof and Robert J. Shiller, and “Your Money and Your Brain” by Jason Zweig. Studying these books will help you cement your understanding of the profound role that psychology plays both in your own decision-making process and in financial markets as a whole. Understanding the psychological side of investing will help you avoid irrational investment decisions.

While it’s not illegal to invest money from a student loan, you may be required to repay subsidized interest if the federal government finds out.

3. Adopt a realistic strategy given your schedule

Carrying out a thorough investment analysis requires a lot of time and attention. As a student, you are unlikely to have the time to research in depth. So it makes sense to adopt a strategy that you can realistically implement in your limited free time.

Perhaps the simplest strategy is to regularly invest in a portfolio of diversified investment funds such as index funds, exchange-traded funds (ETFs), or mutual funds. This approach can be advantageous for investors who are less interested in performing in-depth analysis of individual investments and who would prefer to delegate the more laborious aspects of investing to a third party. On the other hand, investors who want their funds to be actively managed will have to pay for the service in the form of higher management fees.

Full-time students who want to manage their own portfolio will need an effective investment strategy. I have chosen to build my portfolio primarily from companies that are priced below their liquidation value. I chose this strategy because it lends itself better to quantitative analysis and monitoring. For example, I created a standard investment checklist to screen investment candidates. The checklist determined the exact prices at which I would buy and sell shares of the company. I then set automatic alerts using services like IFTTT and Zignals to let me know when stocks hit their specified price thresholds. Using this strategy, I was able to gain real-world investment experience without compromising my education.

For students who want hands-on investing experience but lack the funds, a third option is to invest using online simulators such as Investopedia’s Stock Simulator. Simulators are a great way for investors to test new ideas without risking exposing real capital.

4. Invest in your knowledge

If you lack the time or resources to invest in your college years, it’s worth remembering that the best investment you can make is in developing your own knowledge. This principle also applies to students who have the time and resources to invest.

Depending on your choice of major, you may find that your college education contributes directly to your investment education. Others may need creative ways to find overlap between their training as investors and their college curriculum. The major I chose — Honors History, focusing on the history of science — has no direct connection to investing. Nonetheless, I have found that many of the skills I developed, such as primary research, writing, and critical thinking, have clear applications in investment research and analysis.

Regardless of your chosen field of study, if you approach your investment education proactively, there are plenty of industry professionals available to answer your questions and support you in your development as an investor. . I strongly encourage all student investors to attend networking events and connect with industry professionals.

Another way to grow your investment knowledge is to learn from the world’s greatest investors. I chose to base my knowledge on the value investing methodology developed by Warren Buffett’s mentor, Benjamin Graham. I recommend “The Smart Investor” by Benjamin Graham. Another classic is “Security Analysis”, which Graham co-authored with David Dodd in 1934. To get a sense of how value investing has evolved since Graham’s time, I highly recommend studying the letters written by Warren Buffett to shareholders of his holding company. , Berkshire Hathaway (BRK-A, BRK-B). The letters explain how Buffett implemented and developed Graham’s Principles of Value Investing. These letters are particularly helpful as Buffett recognizes and reflects on his mistakes. Taken together, Buffett’s letters to shareholders and the classic texts of Graham and Dodd provide a comprehensive introduction to the theoretical underpinnings and practical applications of value investing.

5. Keep yourself in good company

One of the greatest benefits of being a student is the ability to connect with a wide range of people on campus. In my experience, a network of peers to discuss investing with has been instrumental in developing a more nuanced investment decision-making process. The key is to find people who are both interested in discussing investing and willing to engage in constructive debate.

Of course, that’s easier said than done. I had to be open about my passion for investing to build this network. It took me until my third year of college to overcome my inhibitions and create an investing website where I share my thoughts on investing. I was amazed to find that many people who I never thought would be interested in investing approached me with questions and comments about my work. For the first time, I started to build a network of peers through which to discuss investment ideas.

The long-term value of these communities cannot be overstated. At the same time, it’s important to keep in mind that people tend to emphasize their own investment successes while hiding or downplaying their mistakes. Therefore, it is wise to approach investment discussions with a healthy degree of skepticism.

The essential

Learning to invest while in college is a challenge. Students who approach this challenge with a clear goal, a realistic investment strategy, and a commitment to learning from the best can use their college years to lay a solid foundation for their investing future. Who knows? One day students may study your investment philosophy.

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