Edward Day - Stock Market 101: Investing for Beginners

Stock Market 101: 3 Hour Crash Course

Investing for beginners

Edward Day

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Everyone has the power to follow the stock market. If you made it through fifth grade math, you can do it.

Peter Lynch

Introduction

W hy should you include stocks in your financial portfolio? To make money, of course. Thats the biggest reason why people get involved in the stock market, and its probably why youve chosen this book. Theres no shame in wanting to make your money work harder for you, and it certainly wont do that if it's lazing around in a savings account (in fact, if you take inflation into account you actually lose money if you allow it to stagnate in a bank account instead of investing it).

There are 18.6 million millionaires (and 607 billionaires) in the United States of America, and theres really not anything stopping you from joining their ranks. In fact, a study which was published in 2017 found that over 80% of millionaires are self-made (and very many of them acquired a large portion of this wealth through the stock market). This means that you can multiply your wealth too youre willing to devote some time to learning the ins and outs of stock trading or, you could invest a little less and happily earn a decent side income. Studies have shown that you should get a minimum average return of 7% - 10% on the money youve invested in the stock market (though obviously your earning potential would actually be much, much higher). Regardless of which of these two youre planning to pursue, youll need to know the basics of stock trading in order to be successful. Fortunately, well cover all of the bases together, and by the end of chapter six, youll be well on your way to being the next Warren Buffett.

A taste of success in the stock market led me to change careers entirely, but Im no stranger to how daunting all of the lingo, terminology, and formulae can be to a beginner. Im 46 now, but I was about 34 when I quit my job as an accountant to become a full-time forex trader (forex traders trade in currency buying currency from one country and converting it to the currency of another in order to make a profit). I spent a large portion of my life studying to be an accountant. I completed a bachelors degree in finance, followed by a masters degree in accounting, but I knew that my potential was being wasted as an accountant. I bet youre feeling the same way, and youre probably not wrong.

I had a mentor too, just like Im going to mentor you. He was a client who I did some work for as an accountant. One day he invited me along to a seminar on forex trading, I was hooked and a new friendship was born from it. I knew that I wanted to know everything there was to know about finance, the economy, and how they tied into the stock market, so off I went and completed another degree (this time a bachelors in economics) and a myriad of courses in forex trading. Within no time, I was being invited to give talks at finance courses on forex trading, and I was mentoring students of my own. Passing on the knowledge Ive acquired is incredibly important to me because I feel that I need to pay it forward out of gratitude to my own personal friend and mentor.

Were not all that different, you and I. I enjoy fishing in my spare time, and Im on cloud nine when Im walking my dogs, Im just a normal guy. This means that, regardless of how average you believe yourself to be, youre capable of achieving everything I have. When I look at my amazing wife and two beautiful daughters, I know that it was all worth it, and itll be worth it for you too.

Im not the only average guy to have made it big through the power of the stock market. Ray Dalio did too. At the moment Rays net worth is $18.7 billion (you would have to earn $200 000 every month for 7791 years in order to make $18.7 billion its a lot of money), but it all started off with a stock that he bought at the tender age of 12. It was the early 1960s, and Ray was working as a caddy at a golf course earning about $6 per bag. He saved up until he had $300 (which amounted to about 50 bags worth of caddying) and spent it all on shares in Northeast Airlines (which became Delta Airlines in later years). At the time, shares in this company were selling for less than $5 per share, which is exactly why Ray decided to buy them. In recent interviews, Ray has urged other young investors not to buy stocks simply because theyre cheap, but it was a move that worked for him. Shortly after purchasing shares in Northeast Airlines, the company was bought by Howard Hughes and the price of its shares skyrocketed. Ray kept building his portfolio by buying more and more stocks with money he made from mowing lawns, delivering newspapers, and caddying. By the time he graduated from high school, he owned thousands of dollars worth of shares. If Ray could finance his eventual success with a caddys wages, you can do it with whatever amount youd like to invest too. Your success in the stock market won't be determined by the amount of money you throw at it, but by your strategy.