I remember when I started investing and felt a bit lost with all the information available. Back then I hoped I’d have some sort of a guide of where to begin and what information sources to use.
So, since there might be some new investors out there who are in the same position, I decided to share with you the things I’ve found helpful during these past 15 years.
In this article, I’ve gathered all the best ways I’ve used to learn about stocks, plus one way I hope I had used.
Reading
I think the most efficient way to learn about stock investing and finance is by reading. No matter where your interest lies, there’s probably loads of content written about it.
As a beginner, one should always start with the basics. Once you understand the core principles, you can move to more complex concepts. Here are a couple of great books about investing basics for beginners.
Once you’ve established your own investment strategy, you can direct a major part of your reading toward that strategy. What I would recommend is to, every once in a while, read something that contradicts your views. Questioning your own way of thinking can sometimes be extremely helpful!
Now, if you’re a fundamental investor, it’s essential to learn how to perform a simple analysis of a company’s business and financials. For a fundamental investor, the companies’ financial statements and annual reports are a great source of information.
When I started to read through financial statements and came across a term I wasn’t familiar with, I Googled it straight away and kept doing it until I remembered what everything meant. That proved to be a very efficient way of becoming financially literate.
Websites and Social Media Platforms
Reading is usually associated with books, which I prefer, but there are also other sources of information. You can read through great informational sites like Investopedia, The Motley Fool, and, of course, the one you’re reading right now!
Also, there are numerous investing forums and other social media platforms that investors seem to enjoy. Personally, I usually avoid them because at one point I read forums quite a lot and found myself succumbing to herd mentality and seemed to lose my objectivity.
When people in a forum focus on a certain stock, they usually own the stock and hope for it to do well.
This can lead to a positive reinforcement loop where, quite often, all the negative (and sometimes relevant) comments are thumbed down, and only positive comments remain. This doesn’t give you a realistic picture of a company and can lead to a biased investment decision.
If you want to scroll through forums, I would pay attention to the tone of the comments. If they are constantly overly positive and predict the stock rocketing or whatever at any given time, you should definitely be wary, and also look for contradicting views.
Studying
There’s a difference between studying and reading. Reading is not necessarily as thorough as studying. When we study, we take notes and aim to have a deeper understanding of the subject. Reading can (sometimes) be just for fun.
If you are a fundamental investor, I would highly recommend taking a course or two in finance and accounting.
Interpreting financial statements is an essential part of making an investment decision that’s based on fundamentals. A few basic lessons in accounting will help you quite a bit. There are, of course, a lot of books written about the subject that you can study.
What’s great about today’s webbed world is that there are tons of free courses from the most revered universities all around the world.
Also, it’s always useful to study economics because, no matter what company you invest in, it operates in an economy. An investor should know at least the basics of how our economy works.
One of the best videos about economics is Ray Dalio’s How Our Economic Machine Works. This one should be mandatory for everyone, especially those not interested in economics.
Following the Stock Market
The best way to learn stock market basics and get to know the markets is to simply see what’s going on.
The thing with stock market news is that most information out there is pretty much useless to you. The media makes money with tempting headlines and clicks, not necessarily with useful information.
When I began investing, I consumed pretty much all possible information there was, which was a bit foolish. You don’t need to read EVERYTHING.
It’s better to read one well-written informational article and focus on learning what the terms and the concepts mean than to skim through hundreds of headlines without really focusing on any of them.
Knowledge has a funny way of compounding, and before you know it, you can read financial news and articles fluently.
There are big differences between sites, and some are more reliable than others. I would recommend starting with more reputable sites like Investing.com, Bloomberg, and The Wall Street Journal.
Of course, not all of us live in the U.S. Although most of the things that happen in the U.S. affect the whole world in some way, you might also want to follow your local media for more comprehensive coverage.
Begin Investing
In the end, there’s no way around it. If you truly wish to learn something, you need to start doing it.
Personally, I would recommend that you start investing with smaller sums. Mistakes cannot be avoided completely, and you’re most likely to make mistakes and lose money in the beginning. Therefore, it’s only logical to limit your losses by investing smaller sums.
Funds
It’s usually wise to build the core of your investment portfolio with index funds or mutual funds and add individual stocks after. Usually, investors do just fine by investing only in funds, so individual stocks aren’t mandatory, but they do offer the possibility of higher returns.
So, the first thing would be to learn about how different funds work and what are the best ones for you. I prefer passive index funds because of their low costs and wide selection.
Although investing in funds is less risky than investing in individual stocks, be sure to avoid the most common mistakes!
Overall, the most convenient way to start is usually with exchange traded funds.
If you wish to know more about how to invest in ETFs, there’s a great book from David Stevenson & David Tuckwell, titled The Ultimate ETF Guidebook, that I think might be helpful.
Individual Stocks
There are numerous different investment strategies. Some prefer the buy-and-hold strategy while others practice trading. One isn’t necessarily worse than the other. The strategy you choose will depend on your risk tolerance, so the first thing to do is to define your risk profile.
If you can handle a bit more risk, wish to chase those higher returns, and become a stock-picker, it’s best to learn how to analyze a business.
Behind every great long-term investment, there’s a successful business. To know which stock to invest in, you must know whether the business is viable or not.
As mentioned before, I think the most effective way to learn business analysis is to study accounting and finance. One of the best ways to learn the basics is to make case studies of publicly traded companies.
You can, for example, make your own analysis of a company’s business model and finances, and then compare it to what professional analysts have come up with. The idea is to see whether they have covered something you haven’t and vice versa.
Just remember that in the long run, analyzing a company like Apple or Amazon might not do you much good since the analyst coverage for the biggest companies is already massive. It’s extremely hard for individual investors to gain any informational edge by analyzing the biggest companies since there’s really no new information to be found.
Once you get the hang of it, you can analyze smaller companies and maybe find some hidden gems.
Overall, I believe you’ll find this video by William Ackman to be extremely useful.
Find a Mentor or a Sparring Partner
One of the things I regret not doing (yet) is finding a mentor.
When you do things by yourself, you tend to focus on the same things and easily lose your objectivity. Having a mentor as a sparring partner may prove to be invaluable.
Usually, people have only positive things to say about mentorship, it’s an activity that benefits both parties.
Personally, I was a bit of a lone wolf for quite some time because there really weren’t any investors in my circle of friends.
This led to a situation where I had to develop a way to, in a way, spar with myself. I found that writing my thoughts down and trying to objectively question them was a big help. Of course, that doesn’t substitute real human communication.
Sometimes when we communicate our thoughts out loud, we tend to see mistakes and weaknesses in our thinking. I believe having someone question you is one of the best ways to improve.
Especially, at the beginning of one’s investing journey, it’s important to understand the basics correctly. Having a more experienced investor to help you will make the start of your investing career much, much easier.
Summary
So, there we have it. The best and most efficient way to learn about stocks is to read and study. At the same time, it’s practical to follow the workings of the market and see how everything works.
After you’ve learned the basics it’s time to get in on the action and start investing. If you find a mentor or a sparring partner, all the better. Having someone to support and guide you will speed up your learning immensely.
If you can’t find a certain someone to help you, there are financial advisors to help you. If you’re not sure how to choose one, this article about the traits of a great financial advisor might be helpful.
The most important thing to remember is that successful investors never stop learning, no matter how long they’ve been investing.
Even if it may feel daunting at first, just keep at it, trust the process, and you’ll reach financial success before you even realize it!
