Stock Market A to Z: 4 Ways to Learn About Investing on-the-Job
Like the prisoners in Plato’s cave, investors always start in ignorance. We don’t know about investing, and we don’t know what we don’t know.
If you’re not sure that you understand what investing is, I recommend reading a few of the earlier pieces in this series. Start off with “What is the Stock Market Really?” – then come back once you’re ready to get into beginner investing.
Once you start to learn about investing, you’ll begin to understand what you don’t know. At first, the jargon will trip you up. What’s an IRA? A 401(k)? What do you mean by “brokerage”? The questions go on.
But beginner investing and becoming a better investor aren’t about memorizing definitions.
To become a better investor, you need to commit to it.Click To Tweet
Thankfully, investing in the stock market doesn’t need to become a life-sapping activity. You can become a better investor by committing just a few hours a year to learning about investing.
1. Be Willing to Continually Learn About Investing
The first step in becoming a better investor is to ignore Nike’s advice. “Just do it” is for sports, not for investing. As an investor, you need to commit at least a little bit of time to learning.
I recommend checking out the book A Random Walk Down Wall Street by Burton Malkiel. It’s an accessible book that explains the nuts and bolts of investing, and it gives specific advice on how to set up accounts and design investment portfolios.
Once you begin investing, you’ll have a lot of questions. I recommend that you try to learn about investing for about 30 minutes each week. That could mean reading investing articles for five minutes a day. It could mean reading one investing book every quarter. Or it could mean listening to a weekly investing podcast. But whatever you do, make a point of continuing to learn about investing. These are a few of my favorite educational resources:
Beginner Investing Books:
The Little Book of Common Sense Investing by John Bogle
The Four Pillars of Investing by William Bernstein
Your Money & Your Brain by Jason Zweig
Beginner Investing Blogs:
- Investor Junkie
- Seeking Alpha
- A Wealth of Common Sense
Free Portfolio Tools:
- Investopedia’s Stock Simulator
- Portfolio Visualizer
2. Confront Avarice and Fear
If you’ve got money in the stock market, you’re an investor. But you’re human first and an investor second. Humans seem to be uniquely designed to make poor investment decisions. We panic when other people panic. We get greedy when others are greedy. And we easily accept cognitive dissonance, so we don’t follow our own rules.
Greed and fear will be the investor’s undoing. To become a successful investor, you must confront and control avarice and fear. Some people say that you ought to do this by having a great financial advisor in your corner. Other people suggest that increasing your knowledge will be your greatest asset. Still others suggest that you simply work on becoming a better person.
Personally, I suggest confronting greed and fear by placing your investments in the context of your life.
If you can earn income from a job, you don’t need to live off investment income. You can leave your investments alone during volatile times. You can take comfort in the fact that a modest return will allow you to achieve your goals.
If you’re properly insured, then you don’t need to rely on your investments to care for your family in the face of an unfortunate event. They will have cash from the policy.
A decent cash buffer can keep you from liquidating your investments at inopportune moments, and it can provide seed capital for the types of investments that really can grow at 100 percent a year (that is, investments in your own successful company).
3. Learn From Other People’s Mistakes
Every wealthy person I know can tell me at least one time where they lost a ton of money on an investment. Successful investors almost always learn about managing their downside risk the hard way. One shortcut to successful investing is to learn from other people’s mistakes.
Sure, you’ll still lose money from time to time. But learning from other people’s mistakes will set you on the path towards higher highs and – more importantly – higher lows.
When you’re learning about other investors’ mistakes, take note of how often they told themselves, “this time it will be different.”
4. Accept the Banal
Above all, becoming a better investor is about accepting the truth that investing is dull. For most investors, unimaginative strategies beat complexity every time. Avoiding mistakes matters more than hitting a grand slam. In their delicate dance with the markets, investors must learn to let the markets lead.
Becoming a successful investor also means accepting that the stock market won’t make you rich. That’s not to say that investing in the stock market is unimportant. It can help you grow a savings habit into a small fortune. And it can also help you turn a small fortune into a somewhat larger fortune.
But growing your wealth in the stock market is slow. Real wealth-building happens outside of the markets – it happens when you save a portion of your paycheck. It happens when you build a business day in and day out. It happens when you spend less than you earn. Investing is just a tool to help with those habits.
This is the sixth installment of a multi-part series on investing. Pieces are published every Wednesday. To start from the beginning, click here.