Why Knowledge is Important to Become a Successful Investor
The greats of investing like Warren Buffett, Charlie Munger, and Mark Cuban have one thing in common. They invest lot of time in learning. In many interactions, they had stressed the importance of knowing more before investing. For them, learning is a never-ending process.
According to us (Netcials team), the compounding power of knowledge is even greater than that of invested money. The cause-effect relationship works like this: Knowledge brings wealth and not the other way round. As simple as that!
Now let us discuss 12 great ways to learn about investing in the stock market. The order is not important. You can choose one or more ways that will suit you.
1 Stock Investing Books
For an in-depth knowledge regarding stock markets and investing, books are good sources. You have to choose a book based on your analysis approach.
While investing, you will usually follow either of two analysis techniques – fundamental or technical.
If you are new to investing, a brief description of the two analysis techniques follows.
- In fundamental analysis you will assess the financial health of a company by looking at basic factors. Factors include management profile, products, profit projections, market leadership, etc.
- Technical analysis relies more on mathematics and chart pattern analysis.
Many investors make mistake of following one analysis technique without learning the other. Nowadays the inclination is towards technical approach. Though this approach is not necessarily wrong, a technical analysis with zero importance to fundamental analysis will not take you far.
A timeless book recommended for fundamental analysis (& value investing) is the one written by Ben Graham, the father of value investing. We are talking about the 1934 classic “Security Analysis“. Warren Buffett is said to have read this book at least 4 times. Graham’s other book, “The Intelligent Investor” will help as well. This book gave important formulas to assess intrinsic value of stocks. Those formulas are used even today.
The books by Graham is not for one-time reading. These books are not like modern-day books that you can complete in a week. These are reference books useful throughout your investing life.
If you are beginner and want easy books to get started, do the following:
Go to Amazon and search with keywords like “stocks for beginners”. You will see many good books including a best seller from Alex. H. Frey. The book is titled “A Beginner’s Guide to Investing“. If you want to find books specific to an analysis technique, you can use keywords like “books for technical analysis”, “books for fundamental analysis”, etc.
2 Tutorials in Websites:
There are lot of websites to learn stock market investing in-depth. Many websites make your learning easier compared to books. Website tutorials have two advantages over books.
- You will find regularly updated content in websites. (Most sites are updated based on feedback from readers.)
- You can easily navigate in websites compared to books.
Some popular websites include:
- The Street
Investopedia is a leading and trusted learning site for beginners and advanced share investors. In this website, you will find explanations for literally every single term used in finance and stock markets. You can use this website as a quick reference guide for any doubt regarding the stock market. Let’s say you got a doubt regarding diluted EPS. (Most people know EPS or Earnings Per Share but are unsure of diluted EPS.) Now, all you have to do is this:
- Go to Google, type site:investopedia.com followed by space followed by diluted EPS.
- You’ll get a quick answer as shown in the below figure.
Investopedia features many beginner guides. For example, you will find step-by-step tutorials for technical and fundamental analysis. These tutorials are extremely useful for beginners.
Another popular site with tutorials is The Street.”The Street” does a great job in simplifying complex topics.
3 Learn by Investing Small
Now you will see a practical way to learn stock markets. And the way is to learn by investing. Since you are just beginning, never take risks but invest small. Experience is the best teacher for a reason. The reason is you are assuming responsibility for your money (however small it may be). Needless to mention, you should limit your exposure to a minimum in the beginning (say for the first 2 or 3 years). Based on your learning and experiences, you can gradually increase your investment. The reason to start slow is that stocks are inherently risky and mistakes are costly. When you invest small, the mistakes will not hurt you but will become important lessons for the future.
As a beginner, you are prone to market risks and losses more than experienced investors. More importantly, setbacks will test your emotions. Beginning small will limit your risk and enable you to better handle large investments in future. This conditioning will help you succeed in the long run.
4 Learning Using Portfolio Stock Trackers
We just discussed learning by investing is awesome but slightly risky. If you are looking for a way that is powerful like real investing but has zero risks, you have one here.
Using portfolio trackers is an alternative way to real investing. Portfolio trackers are simulators by top websites including Personal Capital and Yahoo Finance. Using these tools you can simulate your investments to behave like real ones.
The biggest advantage of portfolio trackers is this. You can track your progress in real time. You can keep a track of profits and losses as well as your net worth. Using trackers is a self-assessing and learning method followed by millions of investors worldwide.
5 Stock Market Discussion Forums
Discussion forums are great places to learn about stock markets through interaction. Experienced investors will be more than willing to help new investors.
For example, a very popular forum for stock market investors is money.stackexchange.com. You can
improve your knowledge not only in stocks but also in other areas related to personal finance. While participating in high-quality forums like stackexchange.com, you should remember one thing. Whenever you ask a question, be as specific as possible. A broad question usually gets disapproved (put on hold) by the moderators. When you ask genuine questions with specific details regarding stock markets or other financial instruments, usually you will get answers in seconds or minutes.
Apart from StackExchange, there are plenty of other quality forums as well. For example, the one by Motley Fool has a well-organized discussion board with clearly classified topics including the following.
- Learning To Invest
- Financial Planning
6 Use Q&A Sites to Learn Stock Investing
“Question and answer” sites are those where you raise a question and experts answer your queries. These sites are different from forums. Q&A sites are not as interactive as forums but will help you get straight answers quickly.
Quora has an interesting feature. At the beginning of every answer, you will usually find a bio (professional details) of the answering person. You can check if the person is qualified to answer your queries. Answer from a qualified person is usually credible.
7 Learn Stock Investing Strategies and Mistakes From Friends
A good method to learn stock markets is from friends who care about you. Learning from the experience of friends has two (related) benefits.
- You will avoid mistakes your friends did at their start.
- By avoiding mistakes, you will avoid years of frustration.
The best thing about friends is that they don’t speak only sugar-coated good things about stock markets. They will educate you not only about potential opportunities but also about potential risks. They will guide you on the strategies that worked for them.
Remember this: Knowledge from books is like learning a rule book of swimming. Knowledge from friends is like training with a coach.
8 Decode Profit/Loss Statements of Companies
Now you will learn an interesting task. This task will help you get deep insights on the financial health of a company. This knowledge is a must to succeed in stock investing.
The task we are going to see is decoding financial statements of companies. Understanding every item of a profit/loss statement is tedious for beginners. However, once you get used to the entries found in the reports, you will get a good picture of the true financial health of an organization. Now you are going to see where to find financial statements.
Every company website will usually have a section dedicated to investors. The section will be called by names like “Investor Relations” or “Investors” or “Financials” or other similar names.
For example, if you like to decode Apple statements, do the following.
- Head over to Apple homepage.
- Click the menu “Investors” at the bottom right.
- Now you will land in the investors relations section.
- Now click the “Financials” menu on top.
- You will see earnings reports (both quarterly and yearly).
- By clicking a time period (e.g Q1), You will be able to access and download consolidated statements as PDFs.
- Download any statement and try to understand each and every item. (When you get doubts, refer Investopedia as outlined at the start of this post.)
(A profit/loss statement will look like the one shown below.)
9 Stock Market Online Courses
We are going to see an alternative but interactive learning-method compared to books. Books are good but lack an important aspect. If you get doubts, you will have no one to help you instantly. This issue is partly solved in online courses. You will see how in a while. But before…
Online courses have another advantage over books. Books are good as reference guides for long term. If you want practical starter knowledge most books will not help you. But courses will help you because they are designed with a time frame in mind.
You may already know about Udemy. Udemy is a leading website with online courses by experts. This site features plenty of courses related to stock market investments.
To find a stock market course follow the below steps:
- Go to udemy.com
- Type in keywords like “stock investing” and hit enter.
- You will find a list of courses. You can check the course details, reviews, and ratings. You can choose one based on your preferences.
It is quite natural to get doubts while taking a course. You can raise your doubts in Udemy. The procedure is to use Q&A feature of a particular course. You will get an answer from none other than the course instructor.
10 Learn From Television News Channels
All the methods discussed methods so far will teach you the foundation knowledge of stock investing. But learning basics is just one part of the game. Another important part is to stay updated on financial news. Every happening like tax reforms, rate hikes, management changes, etc will impact share markets. Hence watch finance news TV channels regularly. Some top news channels in the US include CNBC, Bloomberg and Fox Business News.
11 Listen to CEO Calls
Some CEOs address shareholders through calls. Such calls usually happen after quarterly or annual earnings reports. Listening to CEOs or key managers will help you understand management’s future plans, existing challenges etc. More importantly, the tone of a manager will help you guess how optimistic the management is.
Assessing the management is a key aspect of the fundamental analysis of a stock.
12 Learn From the Lives of Greats
To be a successful investor you have to think like one. The stock market is an emotional playground. History has time and again proved that stock market rewards patience. Best way to learn the mindset of great investors is investors themselves.
Biographies will help you learn the lives of top investors. Reading biographies is the best way to learn and develop your emotional stength to succeed in stock markets. For example, “The SnowBall: Warren Buffett And The Business Of Life” (biography of Warren Buffett) will help you get a closer look at the life of Buffett.
Other than investors, biographies of successful managers/founders will help you as well. For example, a must read for everyone is the book “Steve Jobs By Walter Isaacson“. Learning great managers will give you a frame of reference to analyze the management of any company.
Conclusion: Learn Well, Invest in Stocks & Succeed
Learning is a continuous process. Knowledge is the single biggest investment to succeed in stock markets. Learn well using one or more of the ways outlined above and succeed. All the best
Did you find this post helpful? If yes, kindly leave your feedback in the comments section.