My Investing Notebook :: Learning from the pros; making decisions on my own. ::

I recently gave a speech titled “Investing 101.” It was for my local Toastmasters club. In the speech, I covered some things that might be of interest to individual investors. I’d like to share some of them, below.

Stock Market 101

What is a stock market? It’s where all public companies are listed and are available to be traded. Public? After a company has been successful and the owners decide to make some big money, they sell the company to the public — investors like you. Once the company is public, the original owners no longer own the company. How do you buy shares of the company? You can do it in a brokerage account, or you can buy the shares directly from the company (some companies allow it).

How does a company go up and down? A company goes up when there are more buyers than sellers. That’s the basic idea. For example, Coca Cola makes the news that they’re going to introduce a Super Cola. People that don’t have any shares in the company want to buy some. However, the people that hold the shares hear the news as well. They don’t want to sell the shares. They’d sell it at a premium. So the new people buy it at a premium and the price of the stock goes up.

Are there any risks in investing? Certainly. There are two types of risks: company risk, and market risk. If a company delivers some bad news, it will go down. Sometimes, sharply. The other risk is when the whole economy is not doing well. In that case, most companies go down. Nonetheless, the stock market has been the single best place to put your money over time.

How I Started It

It all started as a Yahoo game (I believe you still can do it) in college. Yahoo gives you 100K and you invest it anyway you want it. Some of my friends were doing it, so why not try it? So I tried it, and I was doing good. At that time, late 90′s, everything was going up. I remember that once I put money into Oracle, and within months, it quadrupled.

So I decided to open a brokerage account. It was all good for a couple of months. However, at that time, the bubble started to burst. I lost a lot of money. As I looked back, I said to myself that I didn’t know enough about the whole investing process and about which companies to invest in. So I subscribed to several magazines. I started reading. I gaines some confidence. My stocks started to go up again and I recovered most of the money I lost.

I’m still an investor now. I invest regularly. But for the first time, I feel that I’m in control.

My Tips & Strategies

Do I have any secrets? No, no secrets, just tips. First of all, invest as soon as you can. You don’t have to have a lot. Start small: couple hundred is enough.

Invest regularly and put money into the same companies over and over. That way, when the company goes down, you’ll buy more of it for the same money, and you’ll even out when it eventually recovers.

Invest for the long term. If you’re not going to invest for at least 5 years, don’t do it. Just don’t do it. It’s not worth it.

Invest in ETFs and Mutual Funds. ETF, Exchange Traded Fund, is basically a group of stocks traded as one. One good one is the S&P 500 — SPY is the symbol (I have several others). ETFs minimize risks. Mutual Funds? When you invest in Mutual Funds, you’re basically paying somebody to trade for you. One great company — low fees, good choices — is Vanguard.

Brokerage accounts. I use two brokers: FirstTrade.com and Interactive Brokers. I buy Mutual Funds at First Trade (free) and I pay a $1 per trade at Interactive. However, an excellent choice for starters (I’m looking into this too — it would be my 3rd broker), is BuyAndHold.com. BuyAndHold lets you invest as little as $20 per month into a company and re-invest regularly. It’s called dollar-cost averaging and I recommend doing that.

Diversify. Don’t just buy one company and hold on to it. It’s too risky. Spread your risk. Diversify. It’s the key word in investing. Buy several companies, buy ETFs, buy Mutual Funds. Minimize the risk. That’s the way I do it.

If you invest regularly and for the long term, you should do well.