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Investing: How to start (over)

Posted by admin on May 16, 2007 in Investment Strategy

Now that I blog on personal finances, friends and family ask me how they can start investing or what stocks they should buy or whether to invest in rental properties etc. etc. If you read my post earlier this week, you know that I decided to start over again in stock investing once I got a clear indication of what was going wrong. Since starting over again is almost the same as starting out, I wanted to share some of my experiences of taking those first steps (I call it my financial mulligan).  The one thing I learned is not to chase product but to chase strategy. Did you know there are more mutual funds than publicly traded companies today? That is a lot of product to chase. If you chase product, you are either chasing yesterday’s winners or engaged in paralysis by over-analysis (which stock is best for me? what mutual fund? what rental property? there are so many to pick!). Chasing product is what lead to a very scattered portofolio.

Instead, through the advice of the same friend who looked at my portfolio, I decided to research strategy and stopped buying anything in the interim.  I began to read financial books by successful investors in all fields: stock investors, real estate investors, bond traders, hedge fund managers- you name it, I read their strategy.  Then, I began to narrow down which strategy works best for me. I found there is no single best strategy- a good strategy is one that (1) makes you money (2) is ethical/does not break the law (3) you are comfortable with/within your risk tolerance.  It can be penny stocks, passive investing, real estate, info-preneurship- it doesn’t matter as long as you know how to execute the strategy successfully and are comfortable with the risk involved. Only then did I look at product; my particular niche is stock investing in financial services, health and utilities/infrastructure (in that order).

What do you do with your money while doing all this research? I did two things: (1) pay down debt; and (2) build up an emergency fund. Paying down debt frees up money to invest and building up an emergency fund gave me a financial and emotional cushion to invest and lose money (my first rule of investing is don’t invest unless you are willing to lose it); I knew if I lost some money in the beginning I would not be financially constrained.

I hope my experience helps first time investors who are taking the plunge into the investment world. Good luck!