Hello everyone, and welcome back to my investments series. I’m your host – Antoaneta, and today, we’ll be talking about the Stock Market in 2021. I took my first financial course in early 2015 when I became interested in trading. By 2017, however, I came to realize that this isn’t the thing for me – it was far too stressful, and it just wasn’t clicking with my personality. But I didn’t want to give up. I was still very passionate about finance, and I decided to try something else. This was when I got into the Stock Market, and I’ve been an involved Stock Market investor ever since.
The Stock Market presents everyone with an accessible and affordable way to increase their wealth. Or, as most investors like to call it – ways to use your money to make more money. Over the years, I’ve had the chance to experience this for myself – my investments have done pretty well. I’ve received many questions, both from aspiring investors and from already established financial enthusiasts, with a couple of successful ventures under their belt. In all honesty, putting this piece together is long overdue, but I was busy with another, finance-related project, that I’ll tell you about later (stay tuned!). Please, check out my other blogs such as, “Defining The Purpose Of Wealth“.
But now, I don’t think that I can delay it any longer, especially given the COVID-19 situation and the current state of the market. A lot of people are worried about their financial stability for the upcoming months (or even years), and many more are looking at the Stock Market as a way to secure their “smooth sailing”. The financial questions that I’m getting are also coming in with increased frequency and intensity, and I believe that it’s about time I published this.
A Quick-Start Guide to Stock Market Investing
We’ll look at the following points:
- What is a Stock
- How to invest: Logic Vs Emotion
- The Investment Strategies
- How to Buy Stocks
- Passive and Active Investing
- Stock Research
- How to Gather Information
- Annual and Quarterly Reports
- Ratios and Metrics
- How to read financial Statements
- How much should a beginner invest
Before we begin, I’d like to just throw in a quick Disclaimer here:
Please keep in mind that, as with all other information on my website, this article is based upon my personal experience and research. I am by no means a certified expert or your personal financial advisor. I would highly advise you to do your own research and consult with a certified professional before committing to serious investments, or another major, life-altering decision.
And now, with all of this out of the way, let’s dive right in!
Stock Market Basics – What is a Stock
If you’re absolutely new, this is probably the first thing that you’ll need to understand, before you get drowned in technical babble.
In plain and simple English, a Stock is a piece of a company. When you buy stock from a company, you’re essentially purchasing a piece, a share of that company. Each public company can list a certain percentage of its shares on the market, and investors can buy them. If you purchase a lot of stocks in a given company, you can find yourself owning a non-insignificant percentage of that business. Some companies will invite significant shareholders to meetings and conferences, and, depending on the circumstances, this might give them a voice in the future of the business.
How to Invest: Logic vs Emotion
Your investment decisions should always be based on logic, throughout research and facts. Never invest on a whim, or when influenced by emotions. Always do your research!
While this is mostly directed at new and aspiring investors, it’s something that all of us, beginners and veterans alike, need to be careful with. Do not give in to hype, panic, influencers or marketing tactics. Always be calm and collected.
The Investment Strategies
Investors make use of various Investment Strategies to plan out their market interactions. The most popular ways are:
- Technical Analysis – a time-consuming strategy based on constant monitoring of stock charts.
- Fundamental Analysis – a strategy, based on external events, trends, and outside influences.
- Passive Funds – a long-term strategy, based on market-weighted indexes and portfolios.
- Behavioural Financial Strategy – an innovative strategy based on the behavioral finance approach.
Passive and Active Investing
Passive investing is excellent if you’re working on a tight schedule. If you only have five or six hours per week to spend on Investing, then passive is the way to go. Personally, I find that passive investing is less stressful, and I enjoy the fact that it’s focused on long-term investments, primarily due to time constraints.
Active investing is for those with a lot of time on their hands. If you enjoy the intricacies of the financial market, then active investing might be a great past-time activity for you. With more spent on the market, you’ll also have more opportunities to learn new things and get up to speed faster.
If you want to be successful on the Stock Market, doing your research is absolutely vital. No matter which strategy you choose, you can only benefit from knowing more about the market and the companies that you work with.
Quantitative and Qualitative Research
Most people usually spend the majority of their time on quantitative research (looking at the numbers), and about 20% on qualitative research (looking at the “quality” of the business).
- Quantitative Research – The financial numbers, reports, and performance speculations all fall into this category. This is where the majority of your time will be spent on. You’ll read Annual and Quarterly reports, metrics, and statistics.
- Qualitative research – you’re looking into the company’s mission, vision, and values. Their culture and leadership. This helps you figure out more about the long-term future of the business, and allows you to see beyond what the numbers and statistics can tell you. Qualitative research also helps you spot potential problems, scandals, and setbacks ahead of time.
Where to find information
- The company’s website – Public companies will have dedicated website pages for investor relations, where you can read their respective reports.
- Your Brokerage platform – Most of the big brokerage platforms offer a plethora of information to their clients, which is where you’ll be getting a decent amount of your data. Generally, they’ll have all of the reports and the majority of statistics freely accessible.
Annual and Quarterly Reports
Companies will publish reports, covering the numbers from the last period, with annual reports covering an entire year, and quarterly reports, focusing on the last quarter. These reports will also contain the company’s plans, hopes, and projections for the future laid out in detail. A word of caution here: These reports are published by the companies and aimed at potential investors. Expect things to be at least somewhat focused around presenting the company in a good light. After all, they are publishing this in the hopes that readers will invest in them.
- Annual Reports (Form 10-K) – These come out around the end of the calendar year for most companies. Annual reports are generally very long, with some larger companies publishing well over 100 pages’ worth of data. Still, if you are serious about investing, I’d highly advise you to read the entire thing, cover-to-cover.
- Quarterly Reports (Form 10-Q) –Much shorter than the 10-Ks, Quarterly reports are meant to give investors a quick, focused overview of a given period. Frequently, 10-Qs will reflectively reference 10-Ks, underlining projections and predictions. They are a great way to learn about what’s happening with the given company right now and are definitely worth the read.
Ratios and Metrics
The ratios and metrics will help you discern the stable companies from the volatile ones. They are yet another crucial tool that you’ll need to master in your investment journey.
- Market Cap — The total valuation of the company. The market cap is calculated by multiplying the number of shares available for the company, by the stock price.
- Beta – Indication for volatility. The average for this metric is 1, with lower values signifying lower volatility. Less volatile companies are less likely to rise or drop along with the market rapidly.
- Earnings Date – This is when companies publish their Quarterly Earning Reports. A lot of these reports are public, and you can freely listen to them.
- Volume — How much that stock is being traded.
- Dividends – A certain small percentage of the company’s earnings can be paid out to shareholders, in the form of dividends. Some stocks will have much higher dividend ratios than others.
How to read financial Statements
If you’d like to understand financial statements and their significance better, I’d highly advise you to have a look at some accounting materials – a basic course or a short book will do.
- Balance Sheets – Assets and liabilities.
- Income Statements – Company revenue and income trends.
- Cash flow Statements – Where the cash is coming from and where it’s going.
How much should a beginner invest?
When you’re a beginner, I’d highly advise you to start small. Yes, just like any other change in your life, your first steps in the world of Stock Market Investing should be taken slow. There is nothing to rush for, the Stock Market has existed for over 400 years, and it will continue to exist long after we’re done with it.
So, don’t rush. Don’t pour all of your savings into your very first investment. Instead, I’d advise you to keep saving money and get into the investing game by using about 10% to 15% of the funds that you’ve prepared for it. This way, even if you don’t make the best choices at first, you’ll be able to recover and keep working at it.
If you enjoyed this article, and you’d like to learn more about the Stock Market, investing, financial independence, or success in general, have a look at the resource section down below. As always, if you found this article useful, then please like it on Social Media and share it with your friends. And, if you have any questions, ideas, or experiences, please let me know in the comment section down below – I always love hearing from you!
Thank you all for reading, and until next time:
Stay green and motivated!
Recommended for further reading:
- Intelligent Investor: The Definitive Book on Value Investing – A Book of Practical Counsel
- The Little Book of Common Sense Investing: The Only Way to Guarantee Your Fair Share of Stock Market Returns (Little Books. Big Profits)
- Stock Market Investing For Beginners: The Investment Guide – How to benefit from the crisis, invest in stocks and generate long-term passive income incl. ETF and Stock Picking Checklist
- The Financial Times Guide to Investing:The Definitive Companion to Investment and the Financial Markets: The Definitive Companion to Investment and the Financial Markets
- Rich Dad’s Guide to Investing: What the Rich Invest in, That the Poor and the Middle Class Do Not!