The following is a guest post from Matthew at Wall Street Survivor. If you’re interested in submitting a guest post to Frugal Rules, consult our guest posting guidelines and contact us.
I’m fairly new to investing. In fact, I’m very new. Just six months ago, if you asked me what “equity” was, my answer would be rather cloudy. You’d probably find me frantically throwing every finance buzzword I could think of at you. And that from someone who had just graduated college with a Bachelor of Commerce, concentrating in finance!
It wasn’t until I started working at Wall Street Survivor in February of this year that I began to formulate an actual understanding of the stock market and investing. Before that, all I’d covered were mathematical formulas for calculating this return and that interest rate. I never knew what I was calculating or why it mattered.
What I quickly learned in my new position – steeped in the ongoings of the finance world – was that theoretical learning could only take you so far. It’s only once you jump in, and start learning about the real world of finance, that you can develop an idea of how to manage and invest your money properly.
So that’s what I’m going to try to show you how to do today; to dive in head first, and start learning about the stock market with a hands-on approach…the way it should be. I’m going to explain it to you the only way I know how, through my own personal experience. I’m not saying this will work for everyone, but hopefully something will stick and change the way you approach investing.
Less Talking, More Doing
It’s extremely easy to procrastinate when it comes to investing your money. I know, because I did it for an entire year. At the beginning of 2012, my New Year’s resolution was to start investing some money in the stock market. A week into January, I signed up for an online brokerage. But just like most resolutions, mine disappeared before the month was out. All I had to do to get things going was send in a picture of my ID and verify my bank account. Simple stuff. But it took me another 12 whole months to take those necessary steps and actually fund the account. And guess what I learned about the stock market in those 12 months….nothing!
My new mantra this year is do it first, and learn about it after. So what I did was I chose 3 companies that I was interested in. And I didn’t think twice about it. I took a small chunk of money and bought some stocks. When I say small, I mean small. Like really small.
But it doesn’t matter. Just having a few bucks in the market automatically heightened my interest in stock market news. I quickly began following what was happening in the 3 companies I was (barely) invested in. Before I knew it, I was having debates with my boss, who has 25+ years of investing experience, over why these companies are awesome investments.
Become a Die Hard Sports Stocks Fan
You know that type of sports fan who’s always wearing a hat, or a jersey, or a t-shirt, or some sort of gear with his team’s logo on it? That type of fan usually knows everything there is to know about his team, from their playoff run in 1963 to every current player’s eye color.
That’s the type of fan you should become…but for your investments. Now I’m not saying you need to go out and buy tons of gear covered in company logos. But I am saying you should want to know everything there is to know about the companies you’re invested in. Once you get started, this isn’t very hard to keep up. There is so much information out there today, that finding news on the companies you’re interested in is easy. What you need to learn to do as a hard-core fan is distinguish the good quality news from the bad. Seeking Alpha is a good place to do that, and I took it upon myself to put together this how-to on researching stocks with Seeking Alpha. You can thank me later.
Invest First. Learn later.
As I said, I’m living by the do it first, learn about it after philosophy. Some may think this is counterintuitive. Aren’t you supposed to learn about things before you do them? How else are you going to get it right?
Well, what I’ve found is learning about things first is plain old boring – whether it’s investing or something completely different. I hate theory by itself. For example, I was in college learning about how to manage a business for 3 years. But I hadn’t started a business and hadn’t really worked at a company that I cared that much about. So all I was learning was theory, without having anything real to apply it to. Now I’m working at a company that I care a lot about. And to be honest, I can’t get enough of all the books and articles out there on managing a business. The same stuff that I would have read in school just a year ago and fallen asleep to, I’m now flying through on the edge of my seat. Why? I’m not just reading theory anymore, I’m educating myself on things that matter to me right now.
The same goes for investing in the stock market. Reading about Value Investing concepts by themselves can be quite dry and boring. But if you’ve got a bit of money in some possible value stocks, and you’ve become a die hard fan of those companies, then that theory won’t be all that boring anymore. Because it matters.
Don’t Set it and Forget it When it Comes to Investing
In the past six months, I’ve heard things like this way too much from people looking to invest their money:
“I just want to give some bank my money and let them deal with it.”
“I just want to put my money somewhere and forget about it for 20 years.”
I’m not trying to say those two options are bad. But I think even if you’re not looking to get extremely involved in the stock market, you can’t fully set and forget your portfolio. All you’ve got to is look to 2008 for reasons why that’s a bad move. Trusting a bank or investment firm with all your investing decisions isn’t that safe. I think everyone should have a basic understanding of how the stock market works and a basic answer to the question, “why am I investing my money this way?”.
For some reason, financial education is so much less important to people than financial independence. Unfortunately, the two go hand-in-hand. But I think (read: hope) some of the things I discussed here will make that road to financial education – and thus financial independence – a little easier.
So now it’s your turn: Do you think people should dive into the stock market head first?
Matthew handles the writing over at Wall Street Survivor. After graduating college in finance and entrepreneurship, Matthew contemplated leaving the finance world forever. But Wall Street Survivor shared Matthew’s vision for financial education reform, and the rest – as they say – is recent history. Matthew enjoys producing music in his spare time and doesn’t have a dog but wants one.
Photo courtesy of: 401 (k) 2013