How Do I Start Investing?

Posted by admin on May 1, 2009 in finances, stock market | Short Link

This week a friend asked me an unusual question: “How do I start investing?”

To be clear, this is an unusual question for him and not for me. I have been asked that a lot, but never by this friend. And even more surprisingly, the market isn’t exactly ‘white hot’ right now. Most of the general public seem to be less than keen on a flutter in the markets, with good reason!

The question provoked an interesting thought though. This friend is keen to invest now because he has always wanted to and he has the money now. He didn’t explain why, but he has a few spare thousand now.

My interesting question is why does human nature make us do this? He has some money and needs to invest it, or spend it, or just do something with it…

Whether now is a great time to be investing your small life-savings into the stock market is not the issue. Since he has the money now, now is the time to invest. Recession be damned! He is going to invest!

Why do we behave in such an odd way? I know that now is a better time to invest (in terms of available prices) than say 1 year ago, but the risk in the market is very high now. Of course, you could argue that the risks were higher 1 year ago(!!) but now they are there for everyone to see.

This means that his potential investment is being driven by human nature and emotion and not investment logic and financial understanding. This is what worries me.

I explained to my friend that all is not rosy in the gardens of the world’s stock exchanges, and I think this might have clamed his trigger finger for now. Just. But he is so eager to invest that he will be back and keener than ever very soon.

I shouldn’t try to belittle his efforts and I shant. In asking me “How do I start investing?” he started at a reasonable place - he asked someone knowledgeable for some early guidance. I have friends that have sought my opinion on investments, I have said no, and they have gone ahead. (In fact, I was talking to just such a person last week - she had asked me about an investment with the now under investigation, Stanford of Antigua, of whom I had not heard. I took a look at the investment and said that it didn’t seem quite right. On my suggestion to pass, she ‘only’ invested US$10,000. Now she is sweating the return of her money. She thanked me though - my caution stopped her from investing US$50,000!)

A big problem though, to my mind, is that he is hoping for an investment suggestion. My suggestion was a list of three books to read. That wasn’t really what he was hoping for I fear. But that is probably the best advice I could give - don’t listen to me! - learn to do this for yourself and save yourself the advice of other people. In case you are not aware, I am no longer employed in the financial service industry, therefore, there is no commission at stake for anyone.

I don’t want to be a spoilsport, and I know that investment and annual reports are not everyones idea of fun, but I think I did the right thing.

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