July 23, 2024
Hello everyone, welcome back! My name is Matt Stearns, and here at Millennial Money Management, if you missed our last episode, we talked about 529 college savings plans and how they are an effective and increasingly popular way to plan and finance your child's future educational expenses. Today, I'm going to give you my five tips for beginners looking to start investing in the stock market.
Okay, so tip number one is: be long-term. Inherently, being long-term means that you're truly investing in a company rather than speculating or trading in the short term. We know statistics tell us that traders and speculators are at a disadvantage and statistically underperform, whereas investors that stay invested for a long period of time and ride out the ups and downs of the stock market make money over time. Being a trader is attractive, and there's potential to make high profits very quickly, and I understand the allure of that, as I've done it before. People also think that they can accomplish this by studying some chart patterns and what we call technical indicators, with basically disregard for the company's fundamentals or their growth prospects. You're really just trying to pick the highs and lows within the day to trade on and hopefully turn a profit.
But I would suggest that if you're a beginner, focus on being long-term. Before you buy that first stock, have it in your mind that you're going to hold onto the stock through thick and thin. You know, an extended period of time—at least six months—is where I would start. And, you know, see if you can follow through and stay the course for that six months.
Okay, number two: understand the company that you are investing in, and put in the work and do the research. Okay, understand that when you're investing, you're investing in an underlying business with hopes that it's going to increase in value and hopefully increase in value at an accelerating pace. Okay? You're not buying a company; you're not buying a ticker symbol hoping that somebody will pay more for that ticker symbol in the future. That is the definition of speculation. That is a lot like what happened with Bitcoin, and I'm not saying Bitcoin will not turn out to be a good investment in the long term, but people were buying it with hopes that they could sell it for more in the future, with really disregard for its current value and its future value prospects.
When you're investing in a company, you're investing in its underlying business. Understand its balance sheet; make sure it has good cash flows, more assets than liabilities, and not a huge debt load. Your company should be fundamentally sound. Okay, this is the fundamentals of becoming a solid investor: it’s not only understanding the business and the industry they’re in and their growth prospects, but understanding the company itself. Listen to a couple of earnings reports, read through maybe a couple of their financial statements. Do the work; it’ll help you stay invested more for the long run because you’ll feel more secure since you understand more information when you got in, and you’ll be able to stick to your guns and ride out some of the rougher waters ahead of you.
Okay, number three: just start with one or two stocks. This kind of piggybacks on what I just mentioned, which is to make sure that you understand the companies that you're investing in. When I say this, I'm a professional investor. I do this for a living, and I've done it for several years. Typically, I add one or two companies to my radar of companies that I really am very confident in, and that could be a couple a year. Okay, so I'm not finding new stocks every day. I'm following them for an extended period of time—months, sometimes years—until I get really comfortable with how their stock reacts to certain news, what their growth prospects look like, and how they compare with their competition. I'm talking extremely thorough research.
So if you're just a once-a-week investor, or you just kind of do it on the side, which I'm assuming most people watching this video will be, just start with one or two stocks. Become experts in those two stocks. The other bonus to this is if you're starting with a small account—say, you know, a couple thousand dollars—by only holding one or two stocks, you're going to minimize the amount of fees that you're paying on your stock account and, therefore, increase potential returns. We don't want to build—we can't build—a portfolio of 30 different stocks with, you know, $2,000 because we'd be incurring hundreds of dollars in fees, and we won't fully understand those 20 or 30 stocks, so we shouldn't be investors in them.
Number four is: invest slowly. Okay, if you invest for six months and you put in $2,000 to test the waters and your company did well, don't go and dump the entire rest of your savings account in all at once. Okay, invest over time, gradually, as things go up. We also call this dollar-cost averaging. So if you invest certain amounts of money—specific amounts, consistent amounts—over time, it averages out when you're buying high or when you're buying low. So then you always get the average price, and this is a way to help your returns in the long run.
So, and that’s slowly; that’s what institutional investors do. They don’t go in and buy a million dollars of one stock; they might spread it out over a week and buy in different installments. Okay, because you’re never going to know exactly if you’re hitting the peak or the trough where you’re at. So invest slowly, and I also recommend sell slowly. Okay? That is the way they do it on Wall Street, and that’s the way that you should be doing it at home.
And number five, and this is the most important: know yourself and trust yourself. If you’re going to put in all this work and put down your own money, trust your instincts. Always remember that before you go and buy that first stock, say, “This is why I want to own this company. I believe in its growth; I think it has a nice competitive moat, and its competitors aren't going to be able to touch it. I think its market is expanding.”
Even if that stock goes down—and this is something I always say before I invest in my stocks or buy stocks for my clients—I say, “Alright, Matt, if this stock goes down 20% next week, are you going to be fine and ride it out?” And also be able to explain that to your clients while you're going to stick it out and wait for it to come back. If it’s down 50% in six months, are you going to be able to stick it out? That’s something I ask before I buy the stock, because when I'm in that situation—which inevitably does happen—I have to look back and say, “Look, when I bought this, my reasoning was sound. The facts haven't changed. The stock price has moved, but the facts haven't changed.” So you’ve got to stick to your guns and trust yourself.
Also, be wary of the people on Wall Street. For every stock out there, there are optimists and pessimists, whether it’s Netflix or Apple or Facebook or General Motors or Tesla. Whatever it is, there are always professionals who do this for a living that are saying, “Yeah, this stock is going way higher.” And there are also professionals on Wall Street who have done this to make an incredible living saying, “You know, this stock is going to tank.” Okay? So trust yourself above everything and stick to your guns.
Above all, realize that investing, more than a business decision or a business journey, is really an emotional journey. So the amount of returns that you get is going to be directly correlated to how well you can control your emotions and keep your logic in check when things are getting really choppy or perhaps getting greedy and hanging on too long to a stock when you should be selling and taking some profits. So be disciplined and control your emotions, and if you can do those five things, you'll be on the right path to setting up a nice portfolio, hanging on through thick and thin.
Remember, time is your friend in this industry, and you have a good chance of making yourself plenty of money. So that’s all I have for you today. Thanks for tuning in, and of course, we'll see you next time. Thanks a lot!
