We often hear the term playing the stock market. It is a well known phrase that rolls off the tongue. But the problem is it can be very misleading. The word play suggests that it is a kind of game that is played for fun using fun money, like monopoly. But the reality is that the only people who tend to make money in the stock market are those who take it very seriously.
For example, the money you decide to invest in the stock market is usually after tax cash, this means you earned it and paid tax on it. When you select a stock market investment you invest this money and if you make a profit you will have to pay tax again. This slippage means the taxman reduces your profits but you are the one taking all the risk. If you loose money the taxman does not necessarily suffer.
Investing as a business.
Investing in the stock market needs to be treated like a business, only then will you be able to treat your money and your time with respect.
Before you invest you need to understand:
- Is the money you are investing important to your daily life?
- The stock market goes down as well as up and it tends to go down twice as quickly as it rises
- How will you treat any profits tax-wise?
- Why are you buying this stock – do you have a trading system or methodology?
- How are you going to record the reasons for entering and existing the trade?
- What is the risk involved in any investment?
- Have you taken a professional stock market training course?
Once you have these questions in check you will be able to begin investing as a business.
While investing you need to understand:
- How long will you hold the investment?
- How much should you diversify your portfolio?
- How many stocks should you own?
- What are your criteria for exiting the trade?
- How can you hedge against risk?
- What types of instruments will you use? – Buying the stock versus shorting or buying options
By taking the stock market seriously you can develop a very structured work like approach to your investing. Understanding risk and having a strategy unique to you is very important.
I would also highly recommend a professional training course before making any investment, this wil improve your confidence and give you the mental strength to believe in your investment choices.