Want to be a stock market trader? An investor? A future Warren Buffet? A Wall Street Bets bettor who identifies as an idiot but has all the luck of a four leaf clover?
While you may have seen headlines like the pros on Wall Street shyly admit following Twitter’s Day Trade Army for stock advice and all kinds of enthusiasm about ‘amateur hour’, with group think tank experiments like this (which told everyone to invest in struggling AMC) proving a retail interest tsunami can (at least temporarily) sustain a business although it is short -circuited all the way by Wall Street, the truth is that as a newbie investor, you are still just as vulnerable to becoming a cropper. Even more so if you have a little luck.
So: however you like to categorize your Saturday / Sunday float, there are a few things you need to know. First off, if you’re much like most of the masses who downloaded eToro or Robinhood out of boredom while on lockdown, you don’t want to go ahead and call yourself an investor. You are only an investor if you have researched the company and really believe in it (and have a long-term view of it).
Second: although you – at close range – should not throw your hard earned money on “Wall Street Bets” Reddit recommendations (or random “ant farm in Sierra Leone” recommendations from friends and family) or worse than the recommendations of small-cap crypto moon shoots (as one DMARGE writer recently learned the hard way), if you’re going to do it, don’t borrow money to do it.
As the CIO of Kitara Investments Tolga Kumova recently stated on The BIP show podcast, if you’re investing in the junior segment of the market, “you’re already in debt.”
“I would not borrow money to go and invest in this [small cap] space, ”he said, referring to his early days as a trader. “The return of risk is already huge and you don’t want to be wiped out. “
It’s also worth noting that he was doing this as a pro, not a weekend hobbyist. And even he managed to be caught off guard.
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With the preface that this is not about financial advice and just a general conversation, he said The BIP show: “I traded CFDs – that’s when I was trying to build my bankroll – and borrowed money from a credit card and traded currencies, the Aussie , the United States all the time and I won’t go into too much detail but I made a lot of money.
“The return was ridiculous in terms of the money I invested [compared] to what I took out… I think it was 500, 600 or 700% – more. But I took that money out and left 30% of what I earned in it. I lost that in a day.
“The second I thought I knew what I was doing, it was gone the next day. I was in debt to the CFD provider and thought it wasn’t for me – can’t do it because you just can’t sleep.
“You have to think about it, watch it all day, every day – you have no life. I realized that the quality of life compared to taking a job, doing your job and understanding a job and understanding the risks of that job is more rewarding.
“That’s what prompted me to quit the business. “
He also said that “the difference between trading and investing is time,” explaining that while you may see people on Twitter posting their daily updates, “I’m sure they have a portfolio in. background where they have more -term view on certain companies.
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Interest piqued? Still planning to carry on with those risky “daily updates”? To keep you on the right track, here are some great general tips for newbie traders, courtesy of eToro.
DMARGE spoke with Josh Gilbert, Market Analyst at eToro. Mr. Gilberst says these are the questions you should ask yourself before investing in a business.
Do I understand basic stock market terminology and the investment platform I have chosen?
Before you start investing, make sure you understand the general jargon and how your preferred investment platform works, says Gilbert.
“You don’t want to accidentally lose money because you misunderstood a term or clicked the wrong buttons. Some platforms, like eToro, allow you to use a virtual wallet before you start investing real money, so you can learn the ropes without risk.
“Remember, practice makes perfect.”
What are my objectives and my investment strategy?
“Not having a financial plan can lead to a lack of focus and be easily swayed or impulsive investing, which often doesn’t end well,” Gilbert said.
“If you don’t have a plan for managing your money, you’ll be more vulnerable to impulse buying, overspending, and other reckless decisions. Even if you earn a lot, failure to plan will likely ruin the goals you set for yourself.
“You must avoid setting vague, overly broad or exaggerated goals without a timeline,” added Mr. Gilbert.
“An example plan might include how much capital you want to invest, how much time you want to spend in the market, how many businesses or assets you want to invest in, and ways to protect yourself against risk, such as diversifying your portfolio or setting stop limits.
Do I really understand what this company is doing?
Mr Gilbert told DMARGE: “Make sure you have a basic understanding of what the business does before you take the financial leap and invest in the stock” and “invest in what you know. “.
“By investing in your passions and interests, you are more likely to understand how they work best. “
“For example, if you like technology, you may decide to buy shares of Apple or Microsoft. Or, if fashion is more your thing, you might want to consider ASOS or H&M. But of course, do your homework on them first, instead of going blind.
Am I led by FOMO?
“Are you just investing in a stock because everyone else is? Or because the headlines and “influencers” have touted it as a “must-have” for your portfolio? Asks Mr. Gilbert.
“Instead of investing in a stock because of FOMO (fear of missing out), be sure to invest for the right reasons and do your research. Do you really see potential in this stock? If the answer is no, you’d better back off.
Am I investing more than I can afford?
It’s a big one. As Gilbert told us, “It’s important to understand your risk appetite and how much you can realistically afford to invest and, in the worst case, to lose. “
“It’s a common misconception that it takes a lot of money to make the investment worth it. With the proliferation of easy-to-use technology platforms for everyday people, you can invest with as little as $ 50. “
“If you start low but invest regularly, you’ll be surprised how quickly your portfolio will build. “
“Be aware of your limits and ask yourself if you could reasonably afford to lose the amount you originally invested in the worst case scenario,” he added.
“High-risk mindsets among inexperienced investors can lead to losses, especially during the global pandemic when the markets have been extremely volatile.”
What value will this stock add to my portfolio?
“The truth is, you don’t need to invest in stocks because they have just been listed and are ‘hot,’ Gilbert told DMARGE.“ All stocks have to meet a need in your portfolio. and basically need to add an exhibit that you don’t already have. ”
“Try to diversify your portfolio with a range of different stocks from different sectors, as well as commodities and crypto-assets to make sure your portfolio is balanced.”
Do I really understand the risks associated with investing in stocks?
Finally, Mr. Gilbert left us a final warning.
“You need to understand that whatever the market conditions, investing in the stock market can be risky.”
“This is why it is essential that you can understand what you are investing and that you are not investing more than what you can afford to lose. “