This post is for anyone interested in getting started in investing in the stock market. Before we proceed any further, we should make a key distinction between trading and investing. Although both involve taking a position (either long or short) in the market, the time horizon for holding this position dictates whether this is a trade (short-term) or an investment (long term).
I will cover each of these types in details and the difference . As a start, I encourage reading the following primer on the stock market, The Neatest Little Guide to Market Investing by Jason Kelly: http://www.amazon.com/Neatest-Little-Guide-Market-Investing/dp/0452278708 . What I particularly like about it is that it lays the basics down in layman’s terms, with a good mix of theory and practice.
After reading this book, pick a financial site such as MSN Money, Yahoo Finance or my favorite Google Finance. Create a virtual portfolio of about 5 stocks across multiple sectors (Consumer, Health, Technology etc.). Over a couple of weeks, pay a close attention to their performance, particularly what are the factors both stock specific and about the general market that impact their price. Through this portfolio, you will be able to strengthen your knowledge of the basics and through time you will start to see the short term patterns in the market place. During the weekends, and month-ends look back at the bigger picture to better understand the longer term patterns in play.
Once you feel that you have a good grasp of these patterns, you are ready to start investing. That being said always invest in increments and over time. This will help reduce the risk of bad timing with respect to the general market (buying at the top). After that the most important thing is discipline which I had outlined in my previous post: https://timesheetchronicles.wordpress.com/2010/06/02/on-investing/.
More blog posts will follow on this topic. Please do let me know if there are any particular area you would like me to cover first in more details.