Starting Out with Stock Investing: How to Get Your Bearing Right

If you are just starting out with stock investing, there is cause to celebrate because, at least on the financial front, it can safely be said that you have seen the light. There is no doubt that you have begun a step that has all the potential to totally reposition you in a realm of steady growth and financial security. Think this is hot air? No, we're talking reality that is borne out of centuries of track record, globally. Yes, there are occasional upheavals in the stock market, but the rally never fails. On the whole, prices continue to go up, meaning that investors continue to make money. You must know, however, that this is not about a magic pill you swallow for instant relief. Your 'treatment' needs time to work and bring the relief you expect. There are also pains along the way, guaranteed. However, if you remain focused and take a long-distance (rather than sprint) perspective, your chance of genuine success is extremely high. The Nigerian stock market continues to put money in investors' pockets and this can work for you too. Mark my word!

Get Your Bearing Right, Ab Initio
It could prove ineffective, and possibly costly, to dabble into stock investing without preparing for it. How would you embark on a major journey without any preparation and forward-planning? Not if you don't want to run into a crises on your way. Ditto with stock investing which is a major plank for financial success for your life. So, what kind of kit do you want for this journey? The following are basic items you need in your toolkit for a fruitful adventure:

• Decide Your Investment Goal
  This is basic, because we all have different needs and goals. Examples: invest to generate funds to build a house of N15 million; accumulate an investment portfolio worth N100 million; build a fund to send kids to the university, etc. Your goal could be any of these or a combination thereof or totally something different. Define what you want to achieve because investing entails sacrifices and this must be for a clear, commensurate objective. If I were you, I'd sit down now and try to articulate what I want to achieve from stock investing.
• Check Your Investment Time-frame
  The gospel we preach is for you to start early, but everybody won't get the message at the same time or respond at the same pace. So, when you finally want to begin, you need to evaluate how much time you have on hand to achieve the results you want. Call it your investment horison. If the house you want is in five years' time, that gives you five years for the job. Looking at a nest egg for retirement? Check how much time you have to retirement - that's your time horison. If 25 years of age and aiming for retirement at age 55, that leaves you 30 years to work. Already forty-five? Then time is short to retirement date, meaning more pressure than the young man of 25 years, if both of you are aiming for the same result. The time profile will play a major part in defining the speed at which you must necessarily move to get to the set target you want to pursue. As a general advice, settle in the market with a long-term perspective. Being a short-term player (speculator) may get some results but that's not truly where your real benefit lies.
• Measure Your Risk Tolerance
  Investing is dealing with the future, with some levels of uncertainty regarding the likely outcomes of your investment decisions and actions. That is risk. As you know, some people are more thick-skinned and daring than others. In this respect, investors are generally classified as aggressive, moderately aggressive or conservative. In between these, it's all a continuum with each investor fitting into a particular level. Other categorisations have been made by other analysts, but they all say one thing: investors' risk attitudes are different. Each investor must discover his risk psychology as this has a lot to do with actions he can reasonably take or not, while investing. The stock market can have its jitters, for one. Besides, opportunities that will come up will reflect different levels of risk. Which ones are for you? Before you get going with stock investing, discover yourself man! Read more on risk tolerance and use this evaluation chart to evaluate your risk profile.
• Trim Your Debt Profile
  It's common sense that debts are no help to the man who wants to build a fortune. Yes, you could borrow for specific targeted investments, but that is not even advisable for a beginner. Interest charges are ever high in our economy, so do your best to minimise your debt exposure. Pay down especially on any high-cost debt. It's like cleaning up before settling into your investment project.
• Deal With Baggage That Drain Your Pocket
  Many people get enslaved to various habits or indulgences that literally drain off their income, incapacitating them from taking constructive action on their future. At times these become addictions, things you impulsively throw money into. Unfortunately, they weaken you financially, even if they make you feel good for the time being. Now, nobody is suggesting you go into absolute self-denial. It's just important, however, to know what it costs you to maintain certain habits, in both direct cost and the investment value, plus potential appreciation, that you forego. To design and successfully implement an investment strategy, you simply have to deal with such unhelpful habits. You certainly know what I mean, because only you will know what, in all sincerity, is a wasteful drain on your pocket. Get each out of your life. That's when you will be ready for meaningful investment action.
• Condition Yourself for Saving
  Without saving money, your desire to invest in stocks is simply a pipedream, if not a huge joke. You must cultivate the discipline to grab some of your income out of the clutches of current spending. You wrest it, because if you leave it, current expenditure is voracious and will eat up everything. Get that again: getting money out for investing is not a tea-party. There are many (pressing) demands on your income and, if you allow them, you will simply have nothing for stock investing. So, you've got a battle between the two spending factions and you better be on the side of investment spending. Decide what specific portion of your earning you want to save and invest. You've heard of 10%, but how far can that really take you? Why not go for the big haul. Yes, other things suffer to some extend in the meantime, but happily, it's not in vain. This one comes back, often many fold. So, it's worth all the trouble.
• Understand It's Not a Jackpot Machine
  If you don't position your mind properly, you could easily get disappointed. Especially if quickly greeted with a significant price loss. Everything said about the earning power of stocks could easily fizzle away in your eyes as empty hype, if you approach the market with a 'kalo-kalo' mentality. It works, but it's not a money-doubling scheme (though your investment can double in value). The more you understand, the more it works for you, so you must be prepared to give it time to work. If you can't, why not try any of the quick-money schemes that abound?
• What Investment Strategy?
  Now, you have to decide how to go forward with your stock investing: you could manage it yourself, deciding what to buy and when or turn it over to a fund manager. Which do you want? Would you like to passively follow the market, running by the sentiment of the market, or to actively do your analysis/evaluations of companies to decide stocks you buy or sell. Do you want to trade your stocks frequently (has it's rewards) or hold over time and only exit when there's strong ground to (has its rewards too)? You need to take some decisions here.
• Devote Some Effort & Resources to Learning
  You're already doing so reading this, but it needs to continue. If you see your stock investing process as a major undertaking, you will appreciate the need for a sound knowledge base. Don't hesitate to read materials that will enhance your understanding and capacity to perform well in the market. The results will justify the cost.

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