Are you planning to invest in the stock market for the first time? Here are some pointers on what to do as you start out.
Are you thinking about investing in the stock market? Before you go any further you need to ask yourself one question: "Am I really ready to buy my first share?"
This article should help you answer that first question. If you then think you're ready, here are some next steps.
Firstly, I'd urge you to read as much as possible. The Financial Times is still the best news source, both online and offline, and some of its opinion articles are excellent. If you don't like the FT, there's normally some good content in the City pages of the other "quality" newspapers. The Investor's Chronicle is also worth a read.
Reading around should give you a feel for the different characteristics of each stock market sector. For example, you'd normally expect shares in banks such Barclays
(LSE: BARC)
or HSBC
(LSE: HSBA)
to be lower risk than shares in loss-making technology companies such as Torotrak
(LSE: TRK)
or Transense Technologies
(LSE: TRT)
.
You might also want to take a look at The Motley Fool's online share-tipping service, Champion Shares where we recommend at least one fresh share every month. Sign up for a free 30-day trial, and you'll be able to read our latest pick as soon as it's published next week.
Reading investment books can help too. I wrote about four of my favourites in this article last year, but I'd like to add Peter Lynch's "One Up On Wall Street" to my list. Lynch was a highly successful US fund manager and his approach can be summarised as "go with what you know."
So if, say, you're impressed with a local restaurant that is owned by a young company on the stock market, then consider that company as a potential investment. Of course, the company may already be fully-valued. On the other hand, it may be a stock market gem. You decide...
Secondly, I'd recommend doing some investment practice. One approach is to set up a paper portfolio of your favourite shares. You can do this at Yahoo Finance and other sites. Then sit back and see how they do. Be careful though, your decision making may be very different if no real money is involved. You may end up remembering your winners and forgetting all about your losers.
Perhaps the best idea is to spend a couple of months reading and watching. Then make some small investments with hard cash. That way, you'll be more likely to learn from your failures, and hopefully you can then become a market-beating investor.
An earlier version of this article was published in April 2006.
Ed owns shares in Transense.
