Learn Investing as You Go Along and Don’t Let Details Overwhelm You
March 8, 2022
Learn Investing as You Go Along and Don’t Let Details Overwhelm You
It can take as little as 10 minutes to open an account, fund it and enter a buy order. But people new to investing sometimes get caught up in the oceans of data, skills to acquire and dumb opinions that can flood anyone’s brain to the point where it just seems easier to do nothing at all. If you’re drowning in information — professionals call it “analysis paralysis” — allow me to offer some advice that just might be the life jacket you need to get started.
Your goal should be to be more right than wrong and always keep learning. Investors should have at least a working knowledge about what’s on a Stock Selection Guide® (SSG®). Luckily there is plenty of material that explains the SSG and if you do get stuck, there are plenty of sites that might cover the topic with a different slant. My first stops are Investopedia.com, followed by Wikipedia.org.
You’ll also want to become familiar with the S&P 500’s structure. The BetterInvesting Top 100 Index (ticker: BIXX) compares itself to the S&P 500 and so do many individual investors. The 500 stocks in the index (you don’t need to memorize them) split into 11 groups called sectors, then into different industries and so forth. Stocks within the same sectors and industries tend to move together.
The sooner you put aside the thought of learning everything there is to know about investing, the less you’ll be intimidated. No one person can know everything. The best investors focus on developing a process that suits their personality and interests. BetterInvesting provides a framework to help you get started picking stocks, but even within that structure, you can still fall as far into the rabbit hole of detail as you want. Spare yourself. Learn at your own pace and invest gradually.
Opinions are like noses; everyone has one. Be wary about whose nose you let into your business. That includes the so-called expert talking heads. Portfolio managers and market strategists generally try to be interesting when they are on TV but try to be right once they’re back in their office. They know few people will remember what they said on TV that day, but they will note their fund’s performance.
Free advice is worth exactly what you paid. Financial commentators don’t know what’s in your portfolio and why you are saving. They might forecast the market action for the next week when you should focus on the next five or 10 years. Or they might recommend stocks that don’t fit with what’s already in your portfolio.
There are infinite ways to analyze the market. BetterInvesting’s method only focuses on three factors: the appeal of the company’s products and services, how well management is turning that into profit, and buying growing companies at reasonable prices.
We look at stock prices the same way a shopper would buy groceries: How can we buy what we want at the lowest price? And we look for growing profits and sound management first and trust the stock prices will — at least enough of the time — eventually reflect that.None of those factors look at whether the stock chart is beginning to form some pattern, like a “head-and-shoulders top” or “forming a base.” Knowing a stock’s price alone doesn’t tell us much. Stock charts can tempt us to forget about the company’s business and profitability and just react to what might turn out to be momentary fluctuations. It’s all too easy to get caught up in what stocks are doing minute to minute.
There are legitimate applications of charting, but they require experience and perspective you’ll acquire over time. You might want to know how a stock reacted to a piece of news or compare the stock movement against the markets, which provides some idea about how a stock might act when the market is rallying or reversing. Some investors eventually find charts quite handy. But experience will teach you not to treat these findings as gospel.
Ideally, you’ll develop a style that encourages you to buy and sell stocks very selectively, sort of like the Oracle of Omaha, Warren Buffett. His firm, Berkshire Hathaway, would often pass on some of the biggest market gainers because the companies didn’t fit his criteria. Your best defense against analysis paralysis will be building experience. Until then, keep your process simple and enjoyable.
