Investing Tips For Newbies

As I went back to school since last year, I stopped having income from work. This means zero savings since August 2014. The world does not stop evolving just because I went back to being a student though. I still want my data plan, my iPhone, my stomach still gets hungry everyday and my wish list does not stop growing.

This is where I turned to investing or trading (it really depends on how green or red the markets are for that day haha). I have been lucky to meet my ex-colleagues who taught me stock market 101. As a Science student, it all seems very complicated to me. It didn't help that dramas always portray stock trading as some thing that needed to be done in split seconds (for certain instruments maybe). My colleagues made it very simple.  So here are some of my tips for those who want to start their own portfolio. I contemplated listing these in order of importance but they are all equally important to me and there is no way you can think about one without the other so in no particular order...

Set your expectations

Before getting into the whole trading scene, it is important to have an aim. What do you want to do with the extra money? How much are you aiming to get? Knowing what you want is important because it sets your expectations, it also help guide you to have a portfolio that will give you want you want. If you want to gain 30% in a year, then buying S&P 500 index (without leverage) is probably not going to cut it. Be mindful though as you set your aim, there are risks involve in every trade, if you are the type who cannot stand losing even $1, then stock trading is not for you.

Start small is better than nothing at all

I have friends who told me, 'I am not going to trade now, I need to wait until I have $50,000 first'. Yes, having capital is important, but what's more important is having the experience. Say you have that $50k and you have no idea what to get and you ended up making huge losses, doesn't this defeats the purpose? 10% gain from $1000 may not mean anything to people like Buffett but hey, $100 is still a month's worth of meal, two weeks of transport cost, is it not?

That said, you cannot start too small though, because there are transaction costs involved when you make a trade.

Buy a penny stock

Penny stocks are stocks that cost very little. These stocks can go for less than $10 a share and buying them more often than not feels like a gamble. Speaking from my short experience in the biotech sector, they are usually small companies with little or no drug portfolio. The entire future of the stock is based on the future potential of drug approvals. One can easily gain over 50% when such approvals happen. Imagine having $10,000 in these stocks...


But. The reason for this tip is to make you understand the risks of buying penny stock. What can result in a 50% gain can easily cause a 50% loss like the one below. You don't have to buy $10k worth to feel the pain, I think a $100 lesson would be good enough.

Do not buy what you do not know

I probably did give a bit away in the front. I invest in healthcare-pharmaceuticals-biotechnology stocks because of my science background. Having some knowledge is important to understand the risk involved and the trends of the industry before you can decide what is a good company to own.

Take for example McD. Say I am a fan of their food since forever and in 2012 I decided to get the stock simply because 'McD is delicious'. I would have a tragic 2-3 years ahead because the stock was virtually trading sideways and I probably would have my heart broken many more times in that interval. If you do not know about the fast food industry, the markets these companies are focusing on and how they are faring, basing your judgement on how delicious McD fries is may not bring you to success.

You can have too many eggs

There is a saying 'don't put your eggs in one basket' and it is somewhat true because you need to diversify your risks. Conversely, you cannot have too many stocks in your portfolio. Unless you are a full time investor, there is simply no time for you to track 100 stocks.

For my portfolio, I have to look at stuff like quarterly financial results, drug pipeline development, wider biotech developments, wider pharma and healthcare trends, economic developments in the US, economic developments across other markets. That is on top of playing games, studying, sleeping, playing, sleeping, playing.. you get the drift. If you simply do not want to spare any time reading news, then get some financial planner or some thing to do it for you.

Stay rational and have fun! 

Stock markets can be wild. Some days I just want to close my eyes and pretend that this is all a dream and some days I get so excited by the gains. Try to stay rational regardless of your yields and evaluate logically if you can get what you aim for, every step of the way. This is just some basic tips for newbies, there are other more complicated stuff which I did not (nor intend to) touch on. If you need some basic courses to help you get started, brokers are very happy to show you the way.