In this exclusive article Clem Chambers, Forbes columnist and author of the Amazon No.1 investing bestseller 101 Ways to Pick Stock Market Winners, discusses the five golden rules to help you start trading successfully.
The 5 Golden Rules of Investing Success, by Clem Chambers.
Stocks and shares seem to be the reserve of the rich; a risky business where the novice loses their shirt. But there must be away to get started without getting burned?There are many more people watching share prices than investing in stocks. Most realise that investing is the way out of living from pay check to pay check, but do not know where to start.
Here are five rules to stock market investing success to get you started.
Rule 1 – Build a stock portfolio of 30 shares.
Take no notice of the people that say put all your eggs in one basket. A portfolio gives you a certainty that bad luck won’t hurt you and that your choices on average will deliver the return your share picking deserves. This portfolio return over the years will outperform anything a bank will offer you on deposit and will compound.
A diversified portfolio will mean you will miss out on good luck, but investing isn’t about good luck. Bad luck and good luck cancel out over time but if you have too much of your money in too few shares then bad luck can knock you out of the game.
Rule 2 – Until you own at least 30 different shares never buy more than £1000’s worth of any share.
Risking too much on any stock investment is a recipe for disaster, even for the sophisticated stock market investor. Keeping your individual share investments small keeps your capital pot safe and lowers the stress that can make investing unpleasant. Once you have 30 stocks you can grow the scale of each investment, but until that day stay small.
Rule 3 – Get online and get the stock picking tools of modern investing.
A free ADVFN account provides investors with free stock market tools that a few years ago would not even be available to the professional fund manager;
- Real time share prices.
- Fundamental information.
- Portfolio tracking.
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These free services let you make highly informed financial decisions on what share to buy and when to sell them.Researching your stock market investments might seem like work. That is because stock market investing is work.
Sadly investing is not a short cut to wealth, you need to treat it like any other way of making money -with focus and determination. Hopefully you will find it a lot of fun and more like a pastime than a chore.
Rule 4 – Always pick stocks using charts.
There will always be new ways to make money using charts and over time they will stop working. This is the way it is with markets.
To be successful you need to be constantly on the lookout for new methods; old ones are always eaten away by the efficient market. To make gold you must slowly destroy your philosopher’s stone and then make another.
Rule 5 – Invest in shares for the long-term.
Buy shares you think you will hold for three or more years. Do not make your broker rich and yourself poor by trying to trade. When the world’s most successful investor, Warren Buffett, claims sloth as his most profitable investing trait you should take note. Slow and steady wins the stock market investing race. Value investing is a great skill to learn.
Put your investing money in a SIPP or ISA and let the profits roll up tax free. While interest from the bank is taxed, using these tools can protect your stock market profits and dividends from tax; one more reason to let the long-term take hold.
Just remember, by the time you can afford a Ferrari from stock investing you will be too old to want one. You think that’s bad? Perhaps you should wonder if you have any other way to get Ferrari rich at all, before you worry how long it will take.
If you can see stock market investing as a part time job from now until retirement you will do very well indeed from it; it is the short-term forex and share traders that get burnt.
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