Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Four Skills You Need to Learn Before Investing in the Stock Market

InvestorEducation / Learning to Invest Jan 25, 2018 - 12:18 PM GMT

By: Chad_Champion

InvestorEducation

Successful investing isn’t just about mastering math formulas, accounting skills, or cash flow models.

Those are certainly helpful if you want to buy individual stocks or bonds. But successful investing is more about developing the right mental attitude.

The way you can develop it is by mastering a specific set of skills.  The good thing is that if you start building these skills now, you’ll be on your way to becoming a better investor.


The first skill you need to develop is temperament. Here’s a great quote on this from Warren Buffett.

He said (emphasis mine),

Investing is not a game where the guy with the 160 IQ beats the guy with the 130 IQ. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing.

What are some of those urges?

The biggest one is the urge to do what everybody else is doing. In other words, following the crowd.

Instead of following the crowd, you need to listen to the crowd.

You can start by observing what the market is doing and by ignoring the experts and the commentators in the financial media.

It’s just a bunch of noise.

Bitcoin is a good recent example… In recent months, the news and media headlines talked 24/7 about Bitcoin setting new highs. Or, some John Doe becoming a Bitcoin millionaire.

Heck, there were even stories of high school dropouts becoming Bitcoin millionaires.

I had Uber drivers asking me about Bitcoin. People at dinner parties were more interested in talking about Bitcoin than stocks, real estate, or even sports.

The price of Bitcoin went from around $900 to over $20,000 in less than a year. Ads chased you all over Facebook shouting how you could make millions by investing in cryptocurrencies.

All the average investor saw was a bright and shiny lottery ticket. So, they started buying as the headlines got louder. Of course, they were buying near the top.

Then, the price of Bitcoin plunged. As of today, Bitcoin is down almost 50% from its high.

All the average investors who bought near its peak price, have lost almost half of their money over the past few weeks.

They couldn’t control the urge. The temptation of getting rich quick was too high.

Successful investors can control the urge to “do something now.” Which leads me to the next skill you need…

They can control the urge because they developed an understanding of price and value. I’ve talked about it a lot.

So, I won’t go into detail now. (You can catch up here if you want.)

You need to get into a habit of asking yourself if the current price is worth paying for the asset. If it’s a stock, what is the price now compared to what it was last year? Or, five years ago?

How low did the price go during the financial crisis? Did the business survive without taking on a lot of debt?

Is the business growing or shrinking? Are its products and services in demand?

These are just starting points. But you can see the kind of questions you should ask yourself.

Think about the overall stock market too. Is it expensive compared to its five or ten-year history?

Nothing goes up forever.

The current market is a good example. It’s been going up since March 2009. It’s been making record highs along the way.

If the market corrects 5-10% or more, the stock you’re interested in will probably go down with it. You need to think about price and value before investing in any asset.

As I’ve said before, the price you pay for an asset is the biggest driver of future returns.

You also need to develop a forever mindset. Of course, we’re not going to live forever.

But your investment decisions need to have a long-term focus. I find it helpful to think in terms of generational wealth.

It makes it easier to develop a forever mind-set. What you invest in today is about setting up a brighter future for your kids, grandkids etc.

If it’s not kids and family, then it could be a charity or something you want to leave behind in the community.

When you develop long-term thinking, you’re able to live with the constant ups and downs of stock prices. A stock may go up 10% one year, down 20% another, and then up 40% in another year.

That drives most people nuts. They can’t take.

They end up making the biggest mistake any investor can make… sell low, and buy high. Or, buy high, and sell low.

When stocks drop, the become gripped with fear. They let the urge of following the crowd take over.

But here’s the thing…

Risk is not the price going up and down. Real risk is the loss of permanent capital.

In other words, making an investment and the stock going to zero. Which means you lost all your money.

Another great Warren Buffett quote sums this up. He said,

Rule No.1: Don’t lose money. Rule No. 2: Never forget Rule No. 1.

Risk is an investment lesson in and of itself…

That’s why understanding price and value are so important. It’s how you manage risk.

You want to buy great businesses with great products and services at good prices.

That’s the Warren Buffett formula. If it’s good enough for the greatest investor in history, then it should be good enough for you too.

Lastly, when you buy a stock, think like a business owner.

The truth is you’re buying a small piece of the business. You become a shareholder.

Yes, a small one. But it doesn’t matter. You now own a small piece of a business.

So, when analyzing a stock, you need to think like an owner. Think of your portfolio as your very own hedge fund or private equity fund.

Treat your portfolio like it’s your own business. After all, you are investing your hard-earned money.

It took a lot of stress, blood, sweat, and tears to build up those funds.

You shouldn’t treat buying one share of stock any differently than if you were looking to buy the gas station down the street or the local coffee shop. The same due diligence applies.

Let’s sum it all up…

Today’s all about learning the four skills of successful investors…

  1. Temperament
  2. Understand price and value
  3. Forever mind-set
  4. Think like a business owner

It’s a completely different way of thinking than the crowd. But it’s how you develop the right mental attitude that investing requires.

Don’t wait any longer… Start practicing and learning these skills today. Let 2018 be the year you develop these skills.

Five years from now, you’ll think it’s one of the best decisions you’ve ever made.

By Chad Champion

http://thechampioninvestor.com

Chad Champion is the Founder and Chief Investment Strategist at The Champion Investor. .

The Champion Investor is focused on helping investors navigate the global markets, find undervalued investment opportunities, and create a second income stream using options.

You can sign up for The Champion Investor Report for free here.

Chad has a Finance and Investment Management background with a Master’s Degree focused in Investment Management and Financial Analysis and a Masters of Business Administration focused in Financial Management.

He spent the past couple of years working as the lead analyst at Casey Research and as a research analyst for Bill Bonner at Bonner and Partners.

© 2018 Copyright Chad Champion - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules