5 Things You Must Know Before Buying Your First Stock

For those of you who think you are ready to jump into the investing bandwagon, hold your horses for just a while more. Here are 5 things you need to know before buying your first stock.

Do not expect a huge profit

First and foremost, investing is not difficult. At the same time, it is not easy.

Do not expect to hit a gold mine the moment you buy into a stock. Investing is more about preserving your wealth rather than making large profits in a short period of time. It is important to know that you will make mistakes along the way and lose money in some of your investments. Keep your expectations in check and learn to take losses before expecting profits. You can read more about making losses here and making mistakes here.

Investing takes time

You are just one investor in a sea of investors. So am I. Our actions are hardly going to make a difference in the market. More importantly, the share price of a company does not have to appreciate just because you have bought it. We must have patience to wait for our investments to pan out over time. Learn more about long-term investing here and here.

“The market can stay irrational longer than you can stay solvent”

John Maynard Keynes once said these famous words. The market has a history of acting irrationally. Do not be surprised if your investments do not go in the direction you want it to. The key is to protect your portfolio against risk. Do not engage in the practice of leveraging if you do not have the assets to back it up if things go wrong. A person constantly worrying about going into bankruptcy due to his or her leveraged-investments would not be able to make sound decisions. Read more about protecting against risks here, and worrying about investing here.

Investing is a lonely endeavour

Investing can be a very lonely undertaking. You have to understand that your investments might be mocked at and criticised at constantly. Warren Buffett was constantly ridiculed for not investing in technology companies during the height of dot com bubble in the late 1990’s and early 2000’s – and he was already an established investor at that time. Learn to control your emotions and not get swayed easily by the opinion of others. You have to be comfortable with your own investments and you do not have to invest in anything just to please the crowd. Learn more about what type of investor you are here.

Define your circle of competence

In the Singapore market alone, there are close to 800 companies to invest in. Take your time and define your circle of competence before investing. You do not need to buy every company you hear about. The Straits Times Index (SGX: ^STI), which is tracked by two Exchange Traded Funds (ETFs) – the SPDR® STI ETF (SGX:ES3) and the NIKKO AM Singapore STI ETF (SGX:G3B) – can be considered a diversified index and yet it only consists of 30 companies.

Still uncomfortable about getting started?

Not to worry! We at The Motley Fool Singapore have prepared a special free report titled What Every New Singapore Investor Needs To KnowIt is a quick five to 10 minutes read on what’s really important about the share market and is a great guide for both new and experienced investors alike regarding the basics of the market.

The Motley Fool’s purpose is to help the world invest, better. Like us on Facebook  to keep up-to-date with our latest news and articles.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim does not own any companies mentioned.