How To Start Investing

When most people find out that I privately invest on the stock market they’re really interested. Most people have this vision of the stock market as a high level casino for acronym speaking businessmen in pin stripe suits and the concept terrifies them.

I became interested in investing when it finally dawned on me how poor interest rates had become. At the time of writing it’s difficult to get even 2% interest on a positive bank balance, when you consider that inflation is currently around the 2% mark you start to realise that your savings are actually losing value over time.

The first step

The first step I took was to buy the book The Naked Trader by Robbie Burns (no, not that Robbie Burns). The Naked Trader is a great introduction to trading, Robbie walks you through every step to getting started, he explains how to place a trade and gives guidance on his stringent set of rules before placing a trade. There’s plenty of success stories and Robbie even talks about his mistakes and why he made them. Following that, I then read the very brilliant One Up On Wall Street by Peter Lynch. Lynch has a very different approach to investing but his down to earth approach and method for finding new investing ideas is very good.

Paper Trading

With my new found investment knowledge I felt a little comfortable with the idea of investing, but I didn’t feel quite ready to place my first trade, so the concept of paper trading seemed like a good start point. Paper trading is essentially playing at trading, you don’t use real money but you trade as though you are. The problem with paper trading is its very difficult to have the discipline to play it like real life. If you lose £1,000 in real life, it’s going to hit you a lot harder than losing £1,000 of imaginary money. My first paper trade sank, it lost around 30% in the space of a couple of days. I breathed a sigh of relief that it wasn’t real money, I sold the shares and took the loss. Meanwhile my other paper trades were gaining, all of them, after a few weeks most of my share selections were up around 10-20% and I was seeing the other down side to paper trading. The gains aren’t real.

The first trade

And so came the time to place my first real trade, my account with Barclays Stockbrokers all set up I bought shares in Vodafone (VOD). Over a year has now passed since I bought my first shares and I still hold them now (currently around 30% up), during that time I have bought shares in around 15 different businesses. For the large part I still hold most of them, a couple I sold for a small loss (14% loss is my worst to date), a couple for decent gains (BAE I sold with a 30% profit, St Ives 55% profit) and on the whole my portfolio is doing very well. Just over a year since I started I’m around 20% up overall. When you compare that to the 2% I would have been up with the money in the bank you have to say it’s worked well.

Luck?

I don’t doubt that I’ve been lucky with the timing and the general conditions of the market. I’m not claiming to be an investing superstar, but whether those gains have been luck or any other reason, they’re still gains that would have taken me 10 years to get the way banks are right now.

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