Investing in the Share Market - EVERYONE'S Option
Knowing nothing about the share market could seem a disadvantage, but sometimes ignorance can be a good thing because first-timers starting afresh won't be dragging along bad habits. And, initially anyway, there will be no financial risk whatever, so making a few mistakes may wound the pride, but won't hurt the bank account. The forthcoming exercise is strictly theoretical - pretend money only. It does, however, involve a fair bit of time, effort and considerable patience. These are the very qualities successful share-traders need to stay on top of things. At the end of this practice period, not only will you know whether you have what it takes, but you will also have a list of shares that you can consider investing real money in.
So, how to begin? Research is most essential. Not only will it provide information on the way the market has worked in the past, but it is also the basis for predicting the future. Looking back over years, even decades, helps with the understanding of trends and their likely causes. Initially, rather than following individual companies over a period, it is advisable to take an overview of the major world exchanges - Dow Jones, ASX, Hang Seng, etc., and see how they have performed during the past year and earlier. A close-up view of the progress charts will show the small peaks and troughs of normal daily or weekly trading. Stepping back a bit to consider the bigger picture, a general trend will become more evident as the shares climb or fall over a longer period. Remember, this is a record of the market in general and does not necessarily reflect the performance of specific shares, or even sectors. For example, while the market itself may have lost considerable ground over six months because of global financial uncertainty, the mining sector could have climbed steadily over the same period. Indeed, one company's shares might actually have sky-rocketed. This is the kind of information which must be reviewed before buying those all-important first shares.
Staying with market trends, there is obviously a reason for the way they fluctuate. To find out the likely causes of variations on the chart means considering not only the financial news around specific times, but also those general, everyday happenings which may not seem to have any connection with money. They do - anything likely to influence the confidence and financial stability of investors will impact on their trading habits which will, in turn, affect the market. Keeping up to date with current affairs both financial and general will help with predicting how the majority of share-traders might react in certain circumstances. The ability to anticipate likely market trends is essential to buying and selling at the right time.
Once research has made the operation of the market less of a mystery, it is time to consider what to buy. Share trading is a little different to the experience most ordinary folk have with respect to normal transactions. For a start, shoppers aren't allowed into the "store" - that's the province of the brokers who buy and sell on behalf of their clients. They will charge a brokerage fee for each transaction, both buying and selling, so it is important to make the enquiries and find out the likely cost so that it can be factored it into the equation. Brokers may also be willing to advise on the shares or sectors which best suit the intended investment, and especially those areas that ought to be avoided.
Once a broker has been found who is willing to handle future transactions, it is time to put the decision-making process to the test. This will involve the success, or failure, of a theoretical portfolio which will be set up based on a fixed amount which should be the same as the maximum you are thinking of risking. To use a larger total, albeit imaginary, will give a false picture and almost certainly a different result. This trial needs to be as close to reality as possible. Anyone who has a tendency to be cavalier in make-believe situations should curb the desire to act brashly. For the sake of the exercise, imagine this is real money you are playing with - your money. Then, even though no actual cash will be won or lost, for most it will feel like it. And at the end of the test period, those who have found it too hard and stressful can bow out, financially unscathed.
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