Monday, October 8, 2007

How To Start Investing On The Stock Exchange

Without a doubt in my mind, I believe that the main reasons that most people are unsuccessful as investors are a lack of both preparation and discipline.

Investment in any form is a show of faith in the future, optimism if you prefer. Whether you are buying property, antiques or stocks, you are displaying your positive outlook for your future years.

Yet despite this obviously good intention, many people make dreadful investments and lose large amounts of money. This optimism can become blinding and prevents us from seeing obvious risks or pitfalls. If we do see them, we may discount them or fail to understand their potential implications.

Therefore, understanding the nature of risk is a key lesson that all investors should try to learn before they begin to invest directly in companies quoted on the stock exchange.

For years, investment newcomers were advised to start by choosing a few companies and investing on paper. In other words, the new investor would follow the progress of the company and share price without actually buying. Each day a new plot on a hand drawn graph of the company would help the investor to understand just a little more.

Over time, the investor might spot trends between the company and a leading index or sector. The price might move in odd and unpredictable ways causing a desire for more understanding and education to explain these mysteries.

This desire for new knowledge is a core trait of successful investors. To succeed in stock exchange investments, it is vital to firstly keep up to date, but if possible to stay ahead of the pack. This might mean reading trade journals, the annual reports of competing firms, company reviews, interviews and much more. This ongoing education is vital to success.

As computer technology has advanced and investment analysis tools that only a few years ago were expensive and highly specialised have proliferated, the basic learning process for an investor has changed.

Should it?

If plotting points on a graph hepled to truly understand the workings of a moving average or stop loss system, why stop? This used to be 'investment 101' but is now a task to be downloaded. For many investors, it was the most valuable investment they made. They learned to invest and to understand the workings of the stock exchange. They learned a skill, for others a trade.

This time and investment in learning will help the decision making process of an investor for years to come. It may both earn and save many thousands as the years pass.

Is this a process that you have taken? To accompany all the reading and theory that goes with investment generally, paper trading is an important pillar in understanding both investments and the stock exchange.

Stuart Langridge is an experienced investor and investment adviser. If you would like to read more of his down to earth investment advice, please click here: