As a beginner in the stock market it is easy to become overwhelmed by the sheer amount of news, resources, stock charts, economic indicators and guru’s promising you untold riches if you let them invest your money.
The stock market is a fascinating place to invest your money, but unfortunately it is a place where money is lost as well as won. You will need specific skills to be able to quickly learn and immerse yourself in the Stock Market and you will need patience and dedication to always improve your knowledge.
What Skills does a Stock Market Beginner Need?
An Aptitude for Numbers
You will need a basic understanding of mathematics. For example the Earnings Per Share (EPS) is simply the profit of a company divided by the number of shares (stocks) it has issued. A high EPS is good, but also more importantly the acceleration in growth of EPS can mean a stock price will begin to increase.
Also the Price Earnings Ratio (P/E) is a simple calculation but it take a little effort to truly understand it. Let us imagine I want to by an Ice-cream Stand. The Owner wants to sell that stand to me for $10,000. I have estimated a yearly profit (after tax) of $2,000. This means it would take me 5 years to make my money back on this investment. Therefore the Price I paid divided by the earnings equals 5. This is what the P/E Ratio or the “Multiple” tells us.
So, the mathematics is fairly easy at the beginning, as you become more skilled so will your maths.
A Basic Appreciation for Business
Businesses exist to make a profit. Businesses make less profit per invested dollar when there is a lot of competition. Businesses make more money per dollar invested when they have less competitors, and even more money when they have less competitors and higher barriers to entry. A barrier to entry, is for example what Intel the chip maker has. They have very few competitors because the cost of developing microchips and manufacturing them is huge. There are only a handful of people in the world in a position to setup competition with Intel.
An Understanding of Product and Services
We all saw the Apple iPhone when it was first released. It was a big WOW factor. Those of us who stopped for a minute to ask ourselves seriously if this product will disrupt an entire industry and be a complete game changer, toppling Nokia and Blackberry, would have answered yes. The ability to appreciate great products and services that will be disruptive to an existing industry or even create a new industry will do very well in the stock market.
How Much Time Does a Stock Market Beginner Need to Learn?
An organized approach to learning
The more organized you are in your approach to learning the more effective you will be and the less time you will waste.
Malcolm Gladwell the famous author suggest to become a master of anything you will need 10,000 hours. I do not think you will need this much time to become competent in investing your money. Think about it, in a typical month we work 160 hours. In a year that is 1,920 hours. So, theoretically 5 years of full time learning and activity in investing will make you a master.
Learning versus Experience for the Stock Market Beginner
You may well need 10,000 hours of combined experience and learning to become a master. But the learning part is the most intensive. Learning means sitting down and actively studying in a structured way the subject matter. When I studied for my Certified Technical Analyst Qualification I invested the best part of 200 hours. This was combined with the previous 10 years of experience I also had in investing.
What Approach to Learning Should the Stock Market Beginner Take?
From my perspective the best thing to do is take a Stock Market Training Course first. A good training course will teach you the core knowledge you need to make sense of the world of investing and it will provide the training in a very structured way to maximize the value you get from your time invested. Then you can apply your knowledge to gain the experience you need by applying your learning to the real world. When looking for a good training course you should read this Guide to Choosing the Right Stock Market Training Course.
How Much Money does a Stock Market Beginner Need to get started?
Lets look at it like this. Most Stock Brokers will ask you for a minimum deposit of about $1,000 to get started and open an account. So that is how much you would need as a minimum.
A low cost trade would cost around $6. So, if you buy $100 worth of stock, that stock would need to increase in price by 6% for you to begin to make a profit. 6% might not sound like a lot, but it is. If you were to spend all $1,000 on a single stock then the stock would need to increase by only 0.6% to cover your cost and begin to make a profit. While it may not be advisable to put all of your money on one stock, with 1,000 that might be what you need to do. I would recommend at least $2,000 to $3,000 dollars to start with. Start small and work your way up.
What is the cheapest way for a beginner to learn about stock investing?
If you have the time and patience, then there are 5 options.
- Get Trained – Take a Free Stock Market Investing Course. Liberated Stock Trader has one and there are many others out on the web.
2. Read Books – Buy the greatest investing books ever written. Liberated Stock Trader updates the list of the best stock market investing books every year, you cannot go wrong investing time in reading a book from an investing master.
3. Watch a Great Movie. My favorite movie on the stock market is by far the amazing “Inside Job – 2011” a documentary into the financial crisis of 2008. See all the best movies in our Top 20 Stock Market Movies Review
4. Watch Videos – here are some Stock Market Video Lessons from yours truly.
5. Listen to some great Audio Books on Stock Market Investing. Read our Top 20 Audio Books Review
I hear the stock market is a risky place for beginners, what should I know?
As a beginner will little experience stock market investing has many hazards. I setup the Liberated Stock Trader to educate people on the right way to learn and become knowledgeable and to warn them of what they need to avoid. The word Liberated means you will be liberated by your knowledge and be able to make your own decisions and see the scam artists for what they really are.
Beware the Penny Stock Newsletters
Many people are tempted by quick riches, but the truth is they do not exist. There are many companies out there that engage in the morally and legally bad practice of pump and dump schemes. A stock marketing company, let’s call them “Stock Commodity Unity Marketing” (SCUM) will receive a payment from a company that wants to boost the share price of it’s worthless business, lets call this company “Titanium Resource Assets Security House” (TRASH). TRASH gives money to SCUM, SCUM buys Stock in TRASH, SCUM promotes this worthless stock of TRASH to beginner investors seeking quick profits (PUMP). As the poor beginner investors start to buy the TRASH stocks, the price starts to rise. As the price rises both the Stock owners in SCUM & TRASH start to sell their stocks (DUMP) at a profit and the stock price plummets. The beginner investors see the stock crash and lose most of their money.
Watch this video I created to see it in action.
Beware the self proclaimed Guru’s
Again as you get more involved in investing you will see there is an army of Gurus ready to recommend the next hot stocks, for a monthly subscription cost of course. While there are clearly a handful of people that constantly make profits in the market, it is less than 10% of all investors that make profits. If you must follow any recommendations or newsletters be sure to read independent reviews and ensure they are fully vetted from a third party.
Even independent reviews can be fake, reviews should be list on an independent trusted website. You really need to do your research before signing up to a newsletter or advisory service.
Do Not Over Pay for Stock Market Training Courses
Stock Market Training can be really expensive. Local training promoters usually offer a free training course at a location near you. You arrive and a person you have never heard of tells you how rich and successful they are and how they are doing you a favor by offering you a weekend seminar for $4,000. You will also get special insight to their secret method for killing the stock market. The presenter will be full of energy and the crowd will get excited and a number of the people who have $4,000 to spare will sign up. You and I both know you will not learn all you need in a weekend to go and become a billionaire like Warren Buffet.
You are better spending your education budget on a high quality self paced training course and then investing in personal coaching from an industry certified professional, look for the MSTA (Member of the Society of Technical Analysts) or IFTA (International Federation of Technical Analysts) qualifications. These qualification are the core certification for proving experience in the Technical Analysis of Stock & Commodities.
You will save money and have the time to let the knowledge sink in and combine it with practical hands on experience.
I sincerely hope this beginners introduction has been of great benefit to you and that it sets you on the right path to getting started in the stock market. If you do register for the Liberated Stock Trader Trading Academy FREE you will be able to reply directly to me on any email you receive with questions you may have.
To your future as a Liberated Stock Trader.
Next Steps for the Stock Market Beginner
Here is a hand picked selection of the best articles from the Liberated Stock Trader.
The Liberated Stock Trader – Top 10 Tips for Stock Market Beginners
How to Choose the Right Stock Market Training Course for you.
What do you want to achieve – What are your investing goals
You have to read this – 5 Stock Trading Mistakes to Avoid
Single way to make money in the stock market.
Sign up for our Free Stock Trading Academy with video lessons and eBooks to download.