Welcome to the sixth and final part of our beginner's guide to investing! From this guide, you should have learnt the basics of investing, including why you should invest, the risks of investing, returns, investment strategies and more. Check out the previous chapters if you haven't read them!
In this final part, we will be looking at what stock to buy. This is probably a burning question if you've read to this point. How do we know what stock to buy? After all, we can't implement any investment strategies unless we buy something!
Of course, this isn't just restricted to stocks, and applies to REITs, bonds or any other investment products as well. In this part, we will discuss where you can look to for stock ideas, recommendations as well as discuss various strategies in picking a stock to invest in.
Preventing information overload
In today's world of information and data sharing, it is very easy to find out information about any particular subject. While in the past, the main issue was the lack of information, the modern problem is that there is too much information to consume, making it difficult to separate the useful from the useless bits.
The first thing we have to address is the concept of analysis paralysis. Individual investors today suffer a lot from analysis paralysis. We've touched briefly on this concept in the previous part of the guide. It essentially means that due to the overload of information, we find it difficult to pick out stock ideas and investment products.
There's always the nagging question in the back of our heads. Will this stock go up? Or will it go down? With the limited amount of capital I have, are there better investment products that I can put my money in to get higher returns?
The main thing to infer from these is the absurdity of these questions. Naturally, there will be better investment products out there. Sure, if you had known and invested in Bitcoin years ago, you'd be a millionaire right now. But these products are difficult and improbably to find.
Even if you found them, will you have the confidence to put your limited capital in these risky products in hope of their future growth? You might have hesitated back then and went for a safer product. There is nothing wrong in such a decision. It all depends on your risk appetite after all.
The main way to prevent information overload is to restrict your information sources to a few ones that you can trust, and from there, do your own research and pick your own ones to do deeper research about. Then, you will be able to make a rational choice on your own among the reduced options.
Don't get too hung up about greater and greater profits - if we play the long term investing game, everything is going to be a long wait. Our time is better spent on making more money then worrying about our investments. Remember, investing is simply an alternative source of money to make your money work for you. It shouldn't be your full time job, although it could eventually be!
Choosing safe stocks
If you're just starting out, it's a good idea to look for stocks you know about. While it can be tempting to follow along with other people's suggestions, it is very easy to get hoodwinked and go along with investment products you don't actually know about.
As a rule of thumb, you should never invest in something you don't understand. Only when you understand an investment product can you rationally determine its profitability, growth prospects and health. This is because you can roughly understand their business model, their key markets and how they are performing in those sectors.
A good point to start out with are safer, larger stocks known as blue caps. These companies are generally really well known, with established markets and good growth. These can range from tech companies like Microsoft, Google and Apple to healthcare brands like Johnson and Johnson and so on.
Chances are, in your daily life, you have used the products from these brands before, so you have at least a general idea of where their businesses are. This allows you to determine if their markets are growing and/or profitable.
We can name these investment products as your "home ground", safe, stable stocks that you understand and can fall back to while investing. This can be useful if you're doing lump sum investing as mentioned in the previous part, as a place to put your money into the market if you are unsure of where to put your money.
Rather than risky stocks and investment products, stick to safer ones first to get your feet wet. The volatility and having actual money in the market will help prepare your mentality and hone your emotions when it comes to investing in the future.
Getting investment suggestions
As mentioned above, try to steer away from fund managers or investment bankers if you are comfortable with doing so. While it can be gratifying to have investment suggestions from a supposedly reputable source, do note that you are paying extra fees for this service.
As such, one might even question if the suggestions given out are to their own benefit, or to your benefit. Perhaps they just want to collect the maximum fees from you, without taking into account your risk profile, financial status and financial goals.
When it comes to money, the only person you should trust is yourself. And if you don't trust yourself to make calm rational decisions, choose to park your money in hands-off investment products like an ETF. That way, you take your emotions out of the question, while still getting the benefits of investing.
Stay away from picking out individual stocks yourself if you do not possess the financial knowledge to do so, or if you do not understand the underlying assets of the investment product. You might burn yourself badly if you do so.
Sources of obtaining stock ideas
Of course, many among you will try to find individual investment products to buy. That's fine, since we are trying to diversify and get higher returns after all.
Searching for good stocks is extremely time consuming, but luckily, we don't have to. We simply have to take in the curated information from other people! Here are some good sources to get stock ideas to pick from.
Naturally, one of our favorite sources is Youtube, a video sharing platform. There are many finance Youtubers these days, talking about investment products and such. While many of them may not be legit, we can still source good stock ideas from here.
Some Youtubers we follow are:
- Andrei Jikh (Investing)
- Graham Stephen (Real Estate)
- Financial Education (Stock Ideas)
- Joseph Carlson (Analysis)
Of course, this is a non-exhaustive list, but these are some Youtubers that we've found helpful along our journey. These Youtubers and more also provide market analysis sometimes, giving you informational breakdowns on topics about what is happening in the markets currently.
Another good thing about Youtube is that it also serves as a platform of discussion. Sometimes, it can be useful to take a gander in the comments section to discover things that the video may have missed, or even more suggestions.
Of course, a key thing to watch out about Youtube is that there are a lot of unverified and conspiratorial theories out there about market crashes and whatnot. As always, take everything with a grain of salt and do your own research.
Another platform that we use frequently for stock ideas is Reddit. For the uninitiated, Reddit is a forum like platform that has smaller communities within it known as subreddits. You can think of subreddits as a smaller forum dedicated to a certain topic.
Helpful subreddits that we like include:
- Investing (Investing questions and discussions)
- Stocks (Stock discussion and analysis)
- Financial Independence (Discussion on financial planning and investing)
Again, this is a non-exhaustive list. After you sign up for an account, feel free to join more subreddits that you like or have an interest in! There are plenty of other subreddits not just for finance, but just about anything you can think of. In fact, you can also get news from Reddit!
Since Reddit is primarily a discussion platform, it's extremely useful to have discussions on the site that can be inconvenient on other platforms like Youtube. Post your stock ideas, and you can receive suggestions or evaluations from others about that stock's financial health, giving you a more rational analysis.
You can also read up on other people's analysis of stocks and the investment landscape, helping you get more investment ideas or plan out new investment paths. There's a lot to learn on this site and the sharing and discussion is a huge added bonus!
And... we have blogs, like this one! Blogs can serve as an extremely good way to pick up financial knowledge, and also a more in depth view on stocks and markets that can be difficult to condense in social media.
While Youtube and Reddit are convenient for mass knowledge, blogs can provide specific and in depth knowledge about particular subjects or topics that you inquire. Honestly, if you have Googled anything and got some information, it probably came from a blog.
Stay tuned to our blog for more stock suggestions and market analysis by signing up for our newsletter! We only send new posts to your email directly.
We've covered several media online to find investing ideas and keep yourselves abreast in the influx of knowledge about the markets. Keeping yourself up to date with the latest news is important as an investor, and social media and blogs help you to condense all that information and make it more digestible.
Again, we have to emphasize that you will have to take everything with a grain of salt and do your own research. Not everything out there can be trusted!
Well known or unknown stocks?
There's a conundrum that a lot of investors face in their journey, which is the decision between putting your limited capital in well known stocks vs unknown stocks.
The argument is simple. When encountering stock suggestions online, most of these suggestions will be for known stocks. These can be stocks that have a good track record and good history.
The benefits in investing in these well known stocks is that since they have a good history and have (hopefully) decent financials, they are pretty low risk buys. However, in that sense, since they are very well established, their growth will start to falter and you wouldn't get as much returns back.
This can be due to other investors taking an interest in this well known stock as well, thus causing it to be overpriced beyond its intrinsic value, making it less worth for your money.
It can also be due to growth being difficult since it exists in an established market, with new competitors or existing competitors stemming the growth.
On the other hand, we have unknown stocks. These stocks may be newly listed, or have not garnered much public attention. They sometimes possess a latent potential for extreme growth like Tesla and Bitcoin, but more often than not, they don't.
Investing in these unknown stocks in the early days of their conception can be risky, but can have huge rewards as well. If you had invested in the early days of Bitcoin, you would have gained 40x of more of your original investment. Of course, hindsight is 20-20.
While going through the social media channels above, you may find suggestions for lesser known stocks, and after doing some research, you might be interested in buying some of them. Whether you choose to buy known or unknown stocks is ultimately up to you and your risk appetite.
That said, do note that unknown stocks are usually priced rather cheaply since they are new or relatively unknown. If you have extra capital and have faith in their markets and growth, it will not hurt that much to put in a thousand or two to bet on their long term prospects. Who knows? You might bet on the next big unicorn.
However, if you can't make up your mind, just stick to safer, more well known stocks. A stable growth is also acceptable.
Ultimately, what we're trying to achieve is a diversified, balanced portfolio, as mentioned in part 2 of this guide. No matter what you buy, make sure you are working towards a portfolio that matches your risk profile so that you don't take too much of a hit if things turn bad!
And that's it for the beginner's guide to investing! We hope that you've learnt a bit about investing and are ready to get your feet wet by buying your first few investment products. Keep the risks and rewards in mind, and don't be too afraid or be stuck in analysis paralysis. Remember, time in the market beats timing the market.
Stay invested, and stay safe. Finally, remember that money is only a means to an end. Make sure you keep your priorities straight - money isn't everything. Keep chasing for that purpose and meaning in your life.
Now, you should start researching on what stocks or investment products you like to buy and determine if you're ready to enter the market at this time. Remember, only trust your own judgment. Take other people's suggestions as advice, but ultimately, make your own decision rationally.
Thanks for reading! If you are still hungry to learn more, check out our intermediate guide to investing below where we will go into how to read the financials of companies to determine if they are safe investments with growth potential and more!
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