If we want to learn how to invest, we have to start somewhere whether it involves opening a trading account, making our first stock purchases or learning the ropes on how investing works in general.
It is safe to say that everyone has their own method of gaining knowledge and competency over time, but what I would like to discuss in this article is a more structured way on how we can learn about investing. My thoughts are based on my own personal experience and learning curve when I started out investing 14 years ago.
Knowledge Gathering And Foundational Learning
First of all, a budding investor should read as much business news as they can, even if they may not understand the entire article. The act of reading is to familiarize ourselves with the jargon and terminology which is used to analyze and discuss a company’s financial statements and business prospects. Over time, constant reading and digestion of such articles enable the investor to feel more comfortable with the vocabulary of investing.
Remember to browse through websites such as The Motley Fool Singapore to understand these terms better.
The second thing an investor should do is to pick up basic accounting, as I had detailed in my previous article. Accounting is the language of business and would enable the investor to comprehend financial statements, which is the key to deeper analysis and critical thinking.
The above should generally take between six months to a year, depending on the level of absorption of each investor and the ability to pick up the necessary skills and competence.
Reading Up On Industries And Companies
Stockbroker reports may be biased, but there is much value to be obtained from reading the thick initiation reports as they contain a wealth of information on a company’s business, growth plans, risks and competitors.
New investors should get their hands on such reports and read through them to gain an understanding on how to assess a company. Reports on key industries such as consumer, healthcare and electronics would also provide the investor with a good understanding of any tailwinds and headwinds within the industry, and give a big-picture view on the industry’s prospects and long-term potential. A company’s annual report can also provide a good overview on how the firm performed in the most recent year and initiatives the management has undertaken to grow the business further.
This process should take another few months to a year, depending on how well an investor is able to process information and make sense of it.
Investing With Real Money (And Learning From Mistakes)
The final phase is what I call the “practical” phase, which is the actual investment of money to purchase shares.
With the knowledge obtained from the “theory” phase, investors can test their ideas by deploying their money to work. The best way to learn, as they say, is to actually perform an action. The “practical” approach is not different from learning how to ride a bicycle — you can’t just read about it without trying it out! Mistakes will inevitably be made and I have also written on why we should document our mistakes so that investing becomes a continuous learning process.
With the above, I hope I have given investors a good blueprint on how to level up their investment acumen. Remember that learning is lifelong endeavour and even though I have been investing for many years, I am still learning new things on a daily basis!
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.