I read this article about investing today with plenty of comments and I disagree with almost all the advice that was given. So, here is what I would have written.
1. Get married. From two heads, there will likely be at least one of you with common sense. Your combined common sense will get you to success in life much faster than following the ‘common sense’ of other people. You will also need to both pay bills and save funds for investing. Two of you will get you there faster. And as you get older and without living parents, you will realize that next to your spouse and children, if you are fortunate to have all that along with good health, your success in stocks will be your greatest joy. If you are truly blessed, you will still be independently trading your portfolio into your late 70s and beyond, deeply pleased you took the right path in life.
2. Try to associate with people who know how to invest — which happens to be fewer than 15% and that includes stock market professionals, corporate executives, and especially bankers, whether or not they know it or will admit it. When it comes to the market, get mentored by successful investors, and ignore all the rest including family and friends, and any others who are smooth talkers. A successful investor will point out that a company is not a stock, and that a stock is just a price. Tesla is the same company at $1500 as it was at $1000. We trade prices. These other people will tell you that you are buying a tiny piece of a company, which is nonsense. If you ever come to believe that then you will treat your stocks like your children, and you will lose.
3. Decide that the best skill you have developed at whatever it is (e.g., electronic games, poker, detailing cars, playing or writing music, whatever…) is at least the level of skill you will require to build wealth from investing in stocks. In other words, understand that building wealth via capital market participation is not easy. Everybody in the market wants to take your money. And, you will not play the market. It will play you, and only high skill and discipline will get you through the incredible challenges you will face every day that you are long stocks.
4. ignore all the books that teach Efficient Market Hypothesis and Modern Portfolio Theory, and tell you to buy ETFs and to diversify, etc. The market is actually really inefficient, but the only way you can take advantage of that is to study a very few companies so much that you understand the link between a company and its stock, and you get to know when the market for that stock is oversold to the point it’s ok to take a risk by buying shares, or over-bought to the point you need to take profit. You should seek to find the highest quality companies (i.e., those with earnings, cash flow, solid balance sheet) that you believe are easiest for you to understand. Smaller companies in most industries are easier to understand than the big ones. The risks are greater but so too are the possible rewards. And when looking for candidates to own, follow your own interests: never listen to a salesman or promoter tell you what you need.
5. At some point, after you get comfortable with market volatility, you will learn to buy into weakness, which is when the majority of investors are selling; and to sell into strength, which is when most are buying. Do not think of yourself as stupidly contrarian. All you are doing is acting like a machine when humans are acting emotionally. The machine always wins. At the beginning, you are a mini-machine so think small. Buy only a few shares. You will sleep better, especially when you are buying and selling against the flow of market prices.
6. Learn to be patient. Success will not come overnight. Sometimes your stocks will fall in price before they become winners, so you need to spend time studying why you made a bad decision, and you will make many. Then try to correct losing behavior. In other words, understand that you will always be a student of the market, always learning how to correct mistakes. We all have them, so don’t take them personally.
I wish you good luck, or as I prefer to say, good fortune.