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What are some tips you would give to someone who has never invested in stock or shares? What are some things they must know and learn to get started?

First you need to answer and set a goal. You want to invest – why? What do you expect? What do you want to achieve?

Once you know answers to it, you can start learning what investing or trading strategy can get you there and focus on that. If you do not know what you want from your investments, it will be difficult to figure out where to start and what to learn. There is tons of information out there but not everything is suitable for everyone.

Another question you need to know answer to is how much time you have to dedicate to your investing management (there are types of investments where you can pay a very little attention to over time – but also expect lesser returns, and investment which may need daily monitoring – more aggressive and profitable). So you need to choose this too before you commit money.

Then you need to see how much money you have to invest as your strategy will be different if you can invest $50 a month or $2000 a month.

Next, what if your age and time horizon. If you are in 20’s and have 40 years in front of you, then your strategy should be very aggressive than if you are in 50’s.

Once you know these answers, you can set a strategy, pick the right books, read, save money, ans start slowly allocating your cash into the selected stocks.

Here is an example I did myself:

I wanted an investment strategy which would generate income no matter what the stocks are doing – in other words, generating income even though we are in a recession and panic, so I do not have to sell the stocks in order to pay my bills and thus incur a loss (when selling assets in a recession). What kind of stock can do this? Well, dividend stocks. But not all dividend stocks are being created equal. Some are good and some bad and actually lose you money. So how do you find out which dividend stocks are good stocks and which are trash? To find out, I recommend you one of the best books ever written on this topic – The Single Best Investment by Lowell Miller. Read it if you are interested. It tells you you need about dividend investing.

Later on, once you gain some confidence, you may adopt a more aggressive strategy (yet still extremely safe and in my opinion safer than buying stocks out right) – options. Options will help you to boost your income which can be reinvested. You will be collecting dividends AND premiums from the option and you will be effectively lowering your cost basis. For example: you want to buy 100 shares of a stock which currently trades at $30 a share. Instead, you sell a cash secured put (or if you are in a margin account you can do a partially secured put – meaning securing it only by a margin requirement). You sell a put with 26 strike price and receive 0.40 or $40 premium. If the stock stays above $26, the option expires worthless and you keep the premium and do the same again. If the stocks drops to $26 or below, you buy 100 shares of the stock at $26 a share. If you bought a stock out right at $30 a share, you will be sitting on a $4 a share loss by now. If you bought via a put option, your cost basis is $26 minus premium received – total $25.6 a share in lieu of $30 a share. Now you have 100 shares, start collecting dividends, reinvest dividends, and start selling covered calls for more premium (overwriting the account). For this strategy I recommend you reading books by Alan Ellman. With this strategy, some call it a “Wheel strategy” you can boost your revenue to 30% annually.

But, this is what I do and learned to do. you need to define first what you want to do. It all starts there.

2 responses to “What are some tips you would give to someone who has never invested in stock or shares? What are some things they must know and learn to get started?”

  1. John Bos says:

    I have not read the 2 you mention, picked them up today from 1/2 Price Books, I will let you know what that brings. Some of the intros seem like things I practice but you can never go wrong reiterating basics.

    • Martin says:

      I bet many of the things in the books are what you already know as those books are mostly for newbies. However, I still was able to find a few good things in there. Definitely worth reading.

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