About 1.5 years ago, I got interested in the stock market and wanted to gain experience in the world of wallstreet. It was less for the big bucks, but more to get a feeling of how the economy works in general and to see how “easy” it is to make money by investing in stocks. I am by far no expert in this topic, but I still wanted to share some of my findings along the way to help people who are interested in the topic or want to get started.
The economy is a fascinating thing and I believe we should all once get into investing in order to increase our financial IQ and also lose the fear of losing money.
Of course the following is based on my personal experience and therefore does not represent a general rule around investing. As always, use your own brain to make your own decisions.
1. Making decisions based on opinions.
This is the most important rule when it comes to investing and I learned that lesson twice! Because at the beginning I had little experience I listened to other peoples opinion and therefore made bad decisions. When it comes to investing in stocks I realized how important it is to do your own research. This is YOUR money that you gonna risk and only you can make the best decision. It is good to listen what other people think and get their point of view but at the end of the day you have to pull the trigger. The worst that can happen to you is if you invest money in something because other people told you so and you make a loss, it will hurt even more. If you lose money, based on your own decision, you will more likely be able to handle it and take some learnings from it.
2. Investing Smaller amounts
The concept of investing is to send you money out into the world and let it work for you so it returns back with more. Therefore you have to keep the costs low. The way how investing in stocks work is that every time you make a transaction, someone will earn a commission (e.g. your bank). The fee can differ from bank to bank, so choose your bank wisely.
Let’s assume that a bank is earning a commission of 10$ for each transaction ( when you buy & when you sell). If you buy 10 shares worth 10$ each then your total costs are 10×10$ + 20$ fee = 120$, right? That means that your stock has to gain more than 20% (or raise above 12$/share) in order for you to make profit. This is very unlikely in the short term. Now imagine you would invest 1000$ and buy 100 shares x 10$ + 20$ fee = 1020 $. Now the world looks completely different because your stock only has to gain 2% or raise above 10.20$/share which is more likely and you increases your chances of gaining profit.
3. Goodbye, Control!
This is the biggest downside of investing in stocks in general and therefore I cannot recommend it to people if they are planning on retiring young and rich with stocks. *haw haw*. Of course there are always exceptions and there are some brilliant traders out there who make their living with stocks, but for the average people getting into trading you have to be really passionate about it and study the market constantly and in order to start with day trading you need at least 25k to get started. In a world of high frequency trading, I am not sure if it’s a smart move anyway. I personally don’t think that I will get too deep into stock trading because I am someone who loves control.
The only control you have by investing in stocks is the timing and the amount you want to invest.. Everything else is outside of your control. You have no control over the company you are investing in. Other people will make the decision and use your money in order to steer the company. Of course no one wants the company to struggle but you as a single person can’t do anything about the business. If you invest in stocks, you have to be aware that there are things going on behind the curtains that you will never know until it’s too late.
Yet, Stock trading is a skill that can be learned. If you are willing to invest time in learning, I am confident that you can make some great bucks.
If you are more interested in how our economy works, here is a very nice video that explains how the economic machine works: