March 22nd, 2009 | by O.A. Wisen
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Occasionally, friends have come up to me, curious to know how they can get started with investing in the stock market. I have been investing for some time now by managing my portfolio, and I’m in no way considered an expert. Most of my knowledge was acquired due to desire, and a want of the ability to understand the stock market for myself. As a result, I fully bear the risks of any wrong (or right) decisions that I make. For all, there is always the option of going through a financial adviser who “more knowledgeable” than the average Joe. Hopefully, by reading my own personal experience, it can give you an idea of how to go about investing, and managing your own portfolio.

My Introduction To Mr. Market

When I graduated from college and started making some money, I wanted to get into investing. I had read about investors, and how they “play around” in the stock market and increase their wealth. So I began to have romantic ideas of getting rich quick. It was relatively easy to get started. I signed up for my company’s 401(k), selected my mutual funds, and after the following paycheck, I was basically in the stock market. Even though I had gotten my feet wet a little, I still wasn’t satisfied with my level of knowledge and involvement, and wanted to go the next level by opening my own personal account. Though I didn’t know how to, I was ready and excited to learn!

I started off with a basic Google search, and went from there. I began consuming tons of information on investing and basic terminology from sites like Investopedia.com and The Motley Fool (I do not recommend these sites lightly). After a couple of days of reading, I was getting quite comfortable with terms such as stocks, bonds, mutual funds, and exchange traded funds (ETFs) – I began to get a deeper understanding of diversification, asset allocation, industry sectors, cyclical stocks vs. non-cyclical, value vs. growth stock, dividends and yields.

Deciding On An Investment Approach

Further reading revealed schools of thoughts – Fundamental Analysis versus Technical Analysis; short-term investing (or day trading) versus long-term investing, and the pros and cons of each. Due to my temperament and affinities, I decided I was better suited as value investor who attempts valuations based on principles of fundamental analysis. I also decided that I would play around with some growth stocks, to diversify my portfolio, and hopefully reap the rewards that usually came from them.

Importantly, it is because of my temperament, affinity to risks, and timeframe that I am able to sleep soundly in the event that a recession claims a huge chunk of my portfolio. Almost everytime I’ve lost money, I usually make it back (and then some) provided that the company I have stock in is still a “great” company and I am patient enough to wait for the next rebound.

Further reading made me aware of terms such as P/E ratio, PEG ratio, dividends and yields, Earnings-per-share (EPS) growth, Dividend Reinvestment Plans (DRIPs) etc., led me to learn about specific people who had accomplished what I was aspiring for – the likes of Warren Buffett and Peter Lynch. I read about their investment approaches, and their views on market cycles, determining when to buy, when to sell, and when to hold.

After I felt like I had learned enough to know my left from my right, I researched discount online brokerage firms, and settled on TDAmeritrade (formerly Ameritrade ).  With my account, I practiced the idea of selecting stocks, placing trades, and watching the performance of the stocks already selected, using available tools that the brokerage provided (there are other discount brokerage firms other than TDAmeritrade such as Zecco and Sharebuilder).

There Is No Lottery In Stocks

It then dawned on me that investing was more art than it was science, yet, it wasn’t a hundred percent art either. Nobody knows or fully understands market forces, but with practice, experience, and prudence, an investor is likely to do well if he is not overcome by fantasies, greed and/or impatience. For example, before a person crosses the road he looks in both directions to make sure that no car is coming. Because of that he are sure that the probability of being hit by a car has been reduced to almost zero. But because he looks every time doesn’t necessary guarantee that you will never get hit by a car. There could be other factors (or variables) like the time of the day, weather and visibility, average speeds and car traffic patterns, nature of the road – winding, curvy, straight, that could greatly increase you chances of being in an accident. In cases like that, depending on all those factors, he would have to be wise enough to weigh the risks and evaluate further mitigation approaches such as waiting, going to another intersection that is safer, or driving.

I am of the opinion that there is no lottery in stocks, even though it might seem that way from some people’s experiences. What I mean is that it would be a wrong approach to view the stock market as another “get rich quick” scheme. Do away with the romantic ideas. People who usually think this way, learn the hard way soon enough.

With time, more learning and practice, I continue to get better in my stock picking strategy, better at understanding my risk affinity, better at using the trading and research tools made available, better at understanding the financial terminologies, and better at understanding macro economic factors that affect the market. As the learning continues, investing continues to be a pleasurable experience for me.

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