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Investor’s checklist I.

This is a post from Hello Suckers

Are you [tag]new to investing[/tag]? Were you thinking you would [tag]start investing[/tag] some [tag]money[/tag] in the [tag]stock market[/tag] to make some [tag]additional income[/tag], but you have no idea how to start? Don’t worry, we all were beginners once, so do I. This article shall give you an “implementation & operational” manual on [tag]how to start investing[/tag]. I would guess you want to start from the beginning so let me start from scratch.

1. Start saving money

For investing in the stock market you would need some [tag]initial capital[/tag] to start. Ideally you want to start with at least 10,000 dollars account, however you can start with 5,000 or even 2,000 account will work. If you do not have such sum, I would recommend opening a savings account and transferring some amount of money until you save your initial capital. Do not open your investing account and save on it, since this account will earn no or very small interest and investing is not only about [tag]buying and selling stocks[/tag], saving money is part of the entire game.

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2. Create your [tag]emergency account[/tag]

If you do not have your emergency account yet, create it first. If you cannot save on both accounts (a part of your savings to your future investing account, part to your emergency account) save your emergency first. The purpose of this account is not only backing you up in case you would need some money to pay some emergency expenses, but it will potentially protect your investments. In a case you may need to pay something important, you do not want to withdraw money from investing account by selling stocks in bad times or when they show some loss (i.e. after purchasing an initial position). You can open one or two independent savings accounts for this emergency purpose. I would not recommend opening more than two accounts, since it is hard to maintain them. I use two accounts. One for short term emergencies and second is a long term account. On the short term account I hold about 2,000 dollars to cover emergency expenses which I am not able to pay off of my regular salary. The long term will cover my life expenses in case of loss of my job and I will draw money off of this account only in this case.

Emergency account is crucial and not many Americans have it. If you want to take your [tag]financial responsibility[/tag] seriously, start creating it as soon as you can. In good times save for bad times. Look at today’s financial mess. Too many people forgot to create their safety net. Too many people believed that the [tag]housing market[/tag] will always go up. Too many people took their equities and bought their new TVs, cars, or vacations. When bad times arrived the same “too many people” realized that they have no back up. They lost their TVs, cars, and even homes. When you lose even your job, you end up in trouble. Of course, your life should not be one big saving and die with a large account, but poor because you didn’t enjoy your life as well. Find some middle way how to be regularly saving while living and enjoying your life. Later you will create your [tag]money making machine[/tag] and you can start enjoying only. However, at the beginning, more effort will pay later sweet results.

3. Start studying from the very beginning

The most important part on the entire process of investing is your own learning. If you believe that investing into stocks is easy money and [tag]get-rich-quick[/tag], you are not ready yet. To be honest with you I started investing while I believed in it and this is why I lost my money. Do not do the same mistake as I did.

There is a lot of information out there. You can find a lot of books as well as a lot of web sites about investing. Read some of them, but be careful when selecting what to read. You should look for the strategy which fits you best and stick to it and avoid any other information otherwise you end up confused in mess. You can start reading on internet first to find some strategies and then continue looking for more information about each particular [tag]strategy[/tag] so you can grab as much information as possible to make the decision. You can also open a hypothetical account and try those strategies on paper first to determine which strategy fits best to you. You can also start reading books from my Library if you think that RSS approach fits you. You can buy those books or you can borrow them in your local library. If you are enthusiastic into investing as I am, you would buy those books to have them handy in the time you want to re-read them and refresh your memory about some tips and advice you have read and almost forgot.

You need to decide what would be your strategy. Do you want [tag]value investing[/tag], [tag]growth investing[/tag], do you prefer long term (buy stock and hold positions weeks and months) or short term (trading within days) or day trading (buy and sell the same day)? Do some research on internet about strategies, read about them and start implementing one of them which you chose and which will work for you (at least on paper).

Start studying market. You can subscribe to some newsletters if you want, or you can use free web sites such as MSN.com, Yahoo.com etc. I use Investors Business Daily as well to read about markets. Reading about markets can give you some idea what the market is doing so you do not invest against the market (another way how to loose money). It can be frustrating reading either, like these days with financial crisis. But you would know when it is time to start buying or when it is good to stay aside.

I like [tag]RSS strategy[/tag] because I do not have time to trade daily. My approach is long term (but not buy and hold) so I like buying stocks and holding them as long as they are making me money, which can be couple days, as well as months and years. I will write about RSS strategy more later below.

4. Create your [tag]investing journal[/tag]

You may have heard or read advice such as “analyze your trades, why you did this or that so you can learn from your mistakes…” Great advice! I tried so many times. I tried to find on internet or in books how to do it so many times. Unsuccessfully. Then I came up with this blog. By writing all my ideas and thoughts here, it is not only me who is benefiting from it. You all can read about it and learn, get your own ideas and improve your own investing. You can use a hand written journal book, computer, blog whatever will help you to summarize your thoughts, ideas and records. Start doing it during your paper trading. Write down everything. Record your thoughts on [tag]market, stocks, economy, stock picking[/tag], etc. Record why you are selecting a particular stock, why you are going to buy it when and why you are going to sell it etc. All the recorded information would help you not only to analyze your trades but adjust your strategy and investing plans. Sometimes you may feel like a dummy, you will have no idea what to write about (i.e. the stock appeared on my screen list, which looks stupid and says nothing about why you are buying it), but keep trying. One day you find your proper language how to communicate with yourself. Sometimes you find out that you are trying to lie yourself, apologize and back up your bad trades. It happened to me as well that I have bought a stock and later I was trying to find a reason for it. You should find your reason first and then buy. You do not have to create a detailed report on each stock the same way as Jim Jubak (I like that guy and his approach) in his Jubak’s picks, but you should get close to it. Write down what is the name of the company, what business they do, how are they doing, read some news, so you get familiar about the company. There are some strategies (and for example [tag]Nicholas Darvas[/tag] was partially using that strategy), which do not care about the company at all. They are pure technical and the only important thing is what the stock is doing in the current market. They look for a break out on high volume and this is literally all they need for trading. I want at least know what the company does for business so I can see and look for its peers and possible outlook in the market. However do not dig too deep. All those numbers you may find will be totally useless. Later you can realize that your company is making huge profits and still its stock is falling like a rock. Do not even look for reasons why your stocks are doing on the market what they are doing. There either is no reason or after you find it, it will be too late to do something about it.

5. Create your [tag]investing plan[/tag] and [tag]money management plan[/tag]

Did you ever tried to find out how to do it? Were you searching books and internet? Have you found something? I haven’t, until I found a book about Reverse Scale System by Braden Glett. This was the first book which gave me a clue what to do and how to create my investing plans and how to deal with money management. “Before the book” I tried so many times and nothing worked well for me. “After the book” I became confident, I have a plan and I know what to do in each moment during opening, holding and closing every single position. Even if you try and go for another strategy, completely different from what I do here, this book is worth reading to know about loss control plan and money management. I am not going to write about it here, just purchase the book and read it. Then open your spreadsheet and create your own plan with all formulas and ideas and use it every time you open your investing account to place the order. Write down all strategies, stop loss plan, pyramiding plan, exiting plan and never trade unless you do your homework and calculations. This plan will help you limiting your losses, protecting your gains and money, pick new trades, drop old trades, protect you against over-investing your account, and many others. After your plan is done, all strategies identified, learn them! Learn patience and discipline. You need to be able to stick to your plans no matter what. Do not double question your plan. Be confident in it, trust it and trust yourself. During studying part and creating plans you had a lot of time to train it on a hypothetical account, so now there is no place for doubts and questioning. You can do adjusting, slightly modifying your numbers and calculations, but the general strategy should remain intact. It is hard part to learn.

6. Open an investing account

Do you have your savings ready? Now it is time to select your broker and open your investing account. Do some research on internet. Ask brokers to provide you with either trial access or with a list of services you can get. Ask for fees and commissions and test their technical and consumer or client support to see how responsive and professional they are. Also look what additional value you can get from them. Some brokers will have a very low or no commissions, but no additional services will be available. Others may charge you some commissions which you may consider high, but you get a lot of free analytical tools on their web site so you do not have to buy them. You would need a program which can do charting for you in which you can draw your own marks, lines, studies, create your own alerts, define your own trading algorithms and not all of those programs you can get for free on internet. Find some brokers, compare their services, support and requirements. You also would need to decide what type of broker you want, if a full-service broker or a discount broker. A full-service broker will be available for you and advising you whenever you would need it. These brokers are however very expensive and their requirements for minimum amount to open an account are high, mostly 100,000 of dollars and higher. A discount broker is mostly an online one and it is easy to open an account with him. Some have no minimum investment requirements, some have $2,000 minimum. Also look for whether your selected broker is insured and registered with SIPC. If you like what you could find about your selected broker, open a new account with him. It is easy and quick. You would be able to open a fully working account within ten minutes and start trading as soon as your money, transferred from your savings account will be deposited to your new investing account.

Here you may find a list of some brokers to start searching. It is not  a full list, but good to start with.

Done? Welcome in the exciting world of a pure capitalism – Wall Street.

to be continued…

Stay tuned for the continuation of Investor’s checklist

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Previous Investor’s checklist articles:

2 responses to “Investor’s checklist I.”

  1. Harry says:

    I am making a report .I was searching for website about Internet Savings Accounts this blog. I am interested in your information and appreciate sites like this.Thank you very much for the information.

  2. Abraca says:

    Good post, looking for the continuation…

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