Stocks For Beginners: 23 Things I Do Differently Today
Stocks are the most honest investment ever. Point.
They make you an entrepreneur and let you participate in the real economy.
Risk aware and calculated wear, instead of being fed by banks with lousy interest and wegschuckucken behind the deposit insurance.
If only it were not such a complex topic.
Sometimes you feel really slain and do not know what to look for or how to get started.
That’s why I’ve put together everything that I know about stocks for beginners.
All the insights here are the quintessence of full time study and my own experiences.
I would like to share all this with you now.
- What is a stock anyway?
- What does a broker do?
- What happens if my broker goes bankrupt?
- How do I buy stocks or ETF?
- Chart analysis is bullshit!
- Have patience. At least 20 years
- 5 minutes of time a month are enough
- Diversify, diversify, diversify!
- No single shares!
- Keep the costs low!
- All head thing: You yourself are your biggest enemy!
- Ignore stock market news!
- Just go to your depot once a month: then when you buy
- Do not think about your portfolio
- Do not buy shares through your house bank!
- Do not buy active funds!
- Should I start day trading?
- No forex / CFD / binary options!
- No raw materials!
- There are no hot tips
- Stocks are not everything: you also need enough on the daily allowance
- Always use limit orders!
- Stocks for Beginners: Be Stubborn!
- You think this post is good? Then support Homemade Finance!
What is a stock anyway?
A stock is a little pinch of a company.
It makes you a small co-entrepreneur, with all the opportunities and risks.
A company with a great business model can create a lot of value and bring you a lot of money, but it can also burn a lot of money.
This is the business risk that you have to take to get more return than on the daily allowance
With stocks, many beginners immediately think about how dangerous it can be, but look at it like this:
You now own a part of the economy. Part of a big and hopefully successful cooperation.
I think that’s a nice thought.
But nothing is straightforward in life, you have to be ready to accept that.
What does a broker do?
A broker has in the end two tasks:
- He goes public for you and gets you stocks or ETF
- He watches your stock and keeps it in a safekeeping account for you
Retention is usually free these days. For him to go shopping for you you have to pay him a fee.
What happens if my broker goes bankrupt?
Nothing in theory. I also asked myself this question at the beginning and then informed myself a bit. Your deposit with your broker is legally and on balance separated from the broker itself.
That is, if it goes bankrupt your securities are still there, you just have to move to another broker. In practice, then, you may not be able to sell for a few days.
From a legal point of view, so everything is regulated. I also believe that the likelihood of a Brokerpleite is not so high. I am also aware of no Brokerpleite recently in Germany.
How do I buy stocks or ETF?
It is easy peasy to enter the stock market today. Find a proper broker in Germany and open an account. Most hardly differ in price or performance.
After you have started to put together a personal share or ETF savings plan, look for next for each security the so-called ISIN (comparable to the ISBN in books) out. In virtually every known broker interface, there is a search function somewhere where you can enter them.
Then set quantity and price and you’re done. You really can not go wrong.
Chart analysis is bullshit!
Many beginners believe that you can use a kind of voodoo on stocks that can predict things.
Especially the drawing of lines and any patterns seems to have done to the people.
Man is a pattern recognizer and believes he can recognize something in everything and everyone. That’s part of our problem-solving behavior.
This works on the stock market but not. Courses in the past say virtually nothing about the future.
As always, believe me not blind, but what scientists have found out:
Fama (1970): Efficient Capital Markets: A Review of Theory and Empirical Work
It’s just a waste of time. If you spend overtime instead of reading charts like in a coffee grounds, you’re probably more likely to spend more money afterwards.
Have patience. At least 20 years
Many new entrants are often frustrated because the portfolio has been down for months. There is nothing to gloss over, it will even happen for years that you are in the dark.
That is normal.
On the stock market you have to bring a long breath as a beginner. For example, the duration of the longest loss period in the S & P 500 was around 16 years, during the Great Depression.
If you buy regularly with equal amounts, then the duration of the loss period has significantly reduced due to the cost-averaging effect.
Nevertheless, we are talking about a period of more than 10 years.
Therefore, you should bring the time accordingly. It should be 20, better 30 years old. If you do not have that much time then you should invest less in equities and more in solid bonds.
5 minutes of time a month are enough
Especially at the beginning of the stock market, you are very enthusiastic, have just bought his first share or his first ETF and would like to deal with it all day long.
That’s ok and it’s nice, but at some point you can imagine that the enthusiasm is going to abate.
That too is ok, because you do not need more than 5 minutes of time a month to run a decent portfolio.
These 5 minutes I use for logging into your online broker and the purchase of your depot. There is nothing more to do.
Do not feel guilty about it, there is no scientific proof that more time in front of the screen leads to better results.
Diversify, diversify, diversify!
Even though you’ve heard that countless times, it’s actually the royal rule on the stock market and should become your mantra.
Diversification is everything.
- Geographical regions (eg Europe, North America, etc.)
- Industrialized and emerging countries
- Big and small businesses
This list does not claim to be exhaustive, but at least give you an idea of what you have to think about.
If you’ve been on Homemade Finance for a while, then you’ve probably noticed that I celebrate ETF very much. This is simply because, as a private investor, it was not possible to set up a portfolio so cheaply and so diversified before.
ETFs have made the financial markets a little fairer. In one fell swoop, you can get 800 companies into the custody account at low cost, automatically covering most of the above criteria. Therefore, I also advise newcomers to start early to deal with the topic of ETF
The Bible on Diversification is by Markowitz: Portfolio Selection
No single shares!
I’m sorry but I’m not Warren Buffett and you probably never will. That is also OK.
Many beginners in the field of equities believe that you can beat the market with a little stock reading on the weekend and can generate excessive returns.
I’m not saying it’s impossible, I’m just saying it’s hard to reach for ordinary people, because the effort is gigantic.
According to legend, Warren Buffett studies nothing but company balance sheets almost all day long simply because he enjoys it. I can not and do not want to keep up with that. Do you?
The lesson is that unless you are Warren Buffett, do not bet on individual stocks, but diversify as widely as possible. By diversified I mean not 5 or 50, but 500+ companies from all over the world in the portfolio. If your purse does not like that, like mine, then it can be done cheaply through ETF .
Keep the costs low!
An important insight that I would like to recommend to any newcomer to shares is that there is nothing certain in the stock market. Man is a control freak and he wants to have everything under control.
Bad news: nobody controls the market. He wavers and sometimes wild. This is the price you have to pay to earn more than negative interest on the account.
But there is one exception: the costs
Keep your order fees low and make sure you have no active funds or ETF with a very high TER / TD.
Usually this is done after an hour and so you have done everything you can control on the stock market to the best of my conscience.
All head thing: You yourself are your biggest enemy!
In my opinion, the real challenge is to be as passive and calm as possible. Why?
Well, science tells us private investors:
- Keep costs low
- Bespare regularly
- Stop fooling around
The first three points are done quickly with a neat ETF portfolio.
Then it may be that someday, when there is nothing left to do, a quiet voice in your head announces and tells you things like:
Maybe I should wait with the purchase, it could be even cheaper
Maybe I should get out to avoid the crisis
Maybe I should …
Do not listen to yourself. Make a proper plan and keep it stubborn and consistent for a few decades with regular amounts. Then chances are good that a decent return comes around.
The art is not to build a smart portfolio or to find the perfect composition. Rather, the art of consistently pursuing a plan that has even begun is without dissuading itself from it.
This is also the biggest challenge for me personally, I suffer from planneritis.
I give my best