Professional Documents
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of Investing
Ten things every new investor should know
#1
Behave like an entrepreneur...
and not like a trader
The Stock Exchange is a place where shares - which are pieces of companies
– are traded. Buying a share means becoming a business owner: an investor
should never forget this. Would you place a bet on something that you don’t
believe in? Of course not!
On the stock market, you have to adopt the same behavior and keep a long
view: it is generally advisable to reason over a period of time of at least 5 years.
But this is a minimum. Ask yourself: what will the company look like in the
future? It might be surprising, but the long term is easier to predict than the
short term.
#2
Define the size of your
budget dedicated to trading...
so you’re never forced to sell
To make money in the long run, you have to stay invested. That goes without
saying, you might say. Staying invested allows an investor to weather the storms
and benefit from whole expansion periods, which are far more numerous than
times of crisis. This also means that you should set your budget in a way that you
never have to dip into the investment pocket, barring rare exceptions.
One more thing: beware the leverage effect, which commits an investor to sizes of
operations that are too large for its resources and which can be a source of stress
and bad decisions. It can also lead to margin calls, sometimes forcing him to sell
at the worst time.
#3
Select companies that are
in good shape...
and avoid speculation
The companies that guarantee the best performance/risk ratio are those that
have good margins, strong growth and low debt. Of course, this kind of
business is rather rare and one must take the time to identify those that exist
right now, or, better yet, identify those that will exhibit these characteristics
in the near future. When companies are in good shape, time is on your side
because these will eventually grow and gain in value. They also have a risk
profile compatible with your long-term ambitions.
The counterpart to this principle is that an investor should not give in to the
sirens of quick and easy money. On the stock market, anything that seems
to offer exceptional compensation involves exceptional risk. As a long-term
investor, it is best not to seek to capitalize on speculation. Beware
ultra-speculative situations, which are irrelevant for long-term investment:
the companies that cannot finance themselves, those that are on the verge
of bankruptcy, those whose stock price is on the floor... Everything that
shines bright for a little while does not turn into gold.
#4
Invest in sectors that you
understand, and ideally master
In all circumstances, respecting the stock market rule «invest only in what you
understand» avoids many disappointments. This is one of the guidelines of
famous American investor Warren Buffett, who believes that the investment
universe is sufficiently broad, so no one should be forced to invest in certain
parts of the economy that are too complex.
If you have a particular expertise in a trade or sector, use it: it is safer to position
yourself on companies whose ins and outs are well understood.
Above all, watch out for the providers of exceptional «tips», especially those
that abound on stock market forums.
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#5
Spread your risk, and your
exposure to sectors and
geographies
Having a balanced distribution of your investment will help you stay calm,
even during less favorable stock market periods. First of all, it’s important
to factor in your risk tolerance, otherwise it can be a source of anxiety, bad
choices and a cause for panic. Every investor is different according to his or
her age, resources and needs...
On stock markets, some periods are more turbulent than others. Investing for
the long term also means knowing how to handle these difficult times: while
the stock market moves up and down a lot, overall, it rises.
When money works hard, you get more return: it is a basic economic rule. By
letting your earnings and dividends work, you benefit from the virtuous effect
of compound interest, a powerful performance multiplier.
A research on the French index revealed that between 2008 and 2018, an
investor betting on CAC40 companies by reinvesting the dividends received
would have earned more than 110%, compared to 54% for the one cashing in.
Numerous studies prove that the search for the best timing leads to lower
capital gains: the perfect investor does not exist. Beware those who claim to
buy at the lowest and sell at the highest, because unless you are incredibly
lucky, it is impossible to predict these extremes.
Watch out for «perma-bears», those prophets of doom who howl with the
wolves but have never built anything. Those who have never entered the
market for fear of a future decline are often those who have never become
rich.
Confirmed investors know that they must take advantage of air pockets,
and these opportunities should not be a cause of stress, because they help
investors enter the market under more favorable conditions.
#8
Think about costs…
and taxes
Choose your broker carefully, to get the right intermediary to spend your
orders. An investor should only select a broker after having defined its needs:
hedging, instruments, prices, features... It is easy to compare offers. Try to
avoid costs that belong to the past, such as custodial fees, bookkeeping
fees and penalties and of inactivity. Let’s not forget about tax. If you want
to be able to take out your money at any time, the ordinary securities
account remains unavoidable. But f rom a medium-term investment
point of view, it is relevant to opt for schemes such as life insurance, that
will help reduce your tax burden.
#9
Invest regularly...
to grow steadily
This is one of the best advices and also one of the easiest to implement:
invest regularly, with a set amount to be invested each month or trimester.
This is the best way to inflate your wealth gradually. You save AND make
your money work for you. You also modulate your cost price and reduce
the risk of bad timing. Besides, it will also save you from having to think
about timing, which, let’s not forget, is counterproductive. Remember that
the vast majority of companies increase in value over time. As your portfolio
gradually moves with the markets, it will take on the same path.
# 10
Start now…
For you
and your children
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