Investing can be difficult especially when you’re just starting out. Don’t expect to “beat the market.” Imagine that you own a basement full of supercomputers and a Wall Street skyscraper full of hundreds of Harvard educated bankers. Each of these bankers is willing to stay up late snorting cocaine and making you money.
They never sleep and when they do they dream of different ways to make you money. These people also have billions of dollars to spend on a whim when they get wind that the market is changing. This is literally what hedge funds and, to a lesser extent, investment banks are. They exist only to make money and they have the resources to do so.
You can still make money, though, and I have some tips for you to make sense of what needs to be done and what to keep in mind based on your investing profile:
- Don’t rush to invest right away. Take your time and learn first. Read up on the different styles of investing and use that to base your own style. The more information you can get, the better.
- Avoid penny stocks at all costs because scammers love them and you'll lose money.
- Read, read, and read. The person with the most information wins.
- The stock market is essentially a zero sum game; for every winner there is a loser. Be prepared so that you are not that loser.
- Don’t get greedy and don’t marry a stock.
- Even if you’re investing with a short-term mindset, keep long-term goals in mind. Only trade stocks that you wouldn’t mind owning in the long run, because if those stocks turn bad you may have to hold on for longer than you had intended.
- Look at some investing sites to really get a base knowledge before you go out and make decisions.
- Be patient. Odds are you won’t make a huge amount of money right away. Stick with it and you will reap the benefits. Don’t base big decisions on a days worth of money.
- As a small investor, you can’t day-trade and you will have to wait three days for funds to settle every time you sell. Keep this in mind when you time the market.
- Feel free to watch CNBC for overall market news but don't trust their advice!
If you try to beat the hedge fund managers you may be successful for a short while but ultimately they will crush you. Any tip you have heard of or theory you have come up with, they heard it first. They have already done it. Also they have better tools, expertise, and judgement to decide what to do next. If they do act, they’ll do it better and faster than you.
Almost no one, including 99% of mutual fund managers, can beat the market over the long run. Set small and reasonable goals for yourself and be smart about your investments.