Money

9 Things I Wish I'd Known Before Investing in the Stock Market

Here's how to avoid pissing it all away in less than a week.
MH
illustrated by Mike Hughes
March 16, 2021, 9:15am
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Image: Mike Hughes

Last March, I decided to put my big boy pants on and throw a modest investment into the stock market. Apparently, I wasn’t the only one.

Poor interest rates and an economy so fucked I’m surprised it hasn’t already imploded have caused a surge in young investors. According to polls, three in four young people are planning to buy stocks and shares in the future, with free trading platforms like Robinhood and eToro breaking new user records in 2020.

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As awareness of these money-shifting machines grows, the misconception that the stock market is a super secret club that’s only accessible if you have thousands to spend is being shattered. When Redditors took on Wall Street earlier this year, it wasn’t just a victory for the people who rode the GME stock price to $400 – it was a victory for all retail investors. Rolling coverage of the story proved just how easy it is to make an entry into the stock market, just as long as you’re really fucking careful. 

Did I have the foresight to do weeks or months of research, meticulously planning my moves to reap the fattest stacks? I did not. But I probably should have done, because it’s been one hell of a bumpy ride.

If you want to get involved in investing and don’t want to make the same crippling mistakes I did, here are some of the things I’d wish I’d known before becoming a stocks-bro. 

YOU WILL PROBABLY LOSE LOTS OF MONEY AND IT WILL MAKE YOU VERY, VERY SAD. 

What is the largest amount of money you’ve ever lost in a single day? Five pounds on a scratch card? 20 quid on a bad bet? £150 you lent your mate with the intention of being reimbursed? (Dazz, if you’re reading this, please just give me my money back.) How about £6,000 in less than 24 hours? 

It is 1PM on the 9th of November, 2020, and I am walking very fast laps of my garden in a frenzied state, taking the occasional break to roll another cigarette between my trembling fingers. This goes on for maybe an entire hour. I notice my neighbour at the window staring back at me. He looks concerned. 

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My precious portfolio is bleeding, and it will not stop. For most people, the 9th of November was a special date in the calendar, being the day the first COVID vaccine was officially announced, but this news absolutely fucked me, because guess whose entire portfolio comprised companies that manufactured COVID testing kits? Me!!!!!!!!!!!!!!! And the general consensus (at least then) was: why would you need testing kits if the vaccines are getting manufactured?

This takes me to my next point… 

DIVERSIFY YOUR PORTFOLIO!

This means spreading your investment across companies which do different things. The point above should illustrate why this is important. A good or bad news story can make a significant dent if you’re not clever. Fast fashion scandal? Bad news for boohoo and H&M. Elon Musk wrapping his lips around a spliff on a Joe Rogan podcast? Troubling times for Tesla.

Because it’s important enough to repeat, here it is once again: diversify.

YOU DO NOT NEED LOTS OF MONEY TO START INVESTING

Seriously, you really don’t, and if I knew this I’d have made my entry into the stock market a lot earlier. I started with £600, but I’ve got mates who tripled their money by investing as little as £20. Some trading platforms support fractional shares where you own a portion of a stock, meaning you can buy into Tesla without spending hundreds on a single share, or Bitcoin without dropping £40,000. 

DO YOUR HOMEWORK

“I like the stock,” was how many Redditors justified throwing all of their money at AMC Entertainment, GameStop, Nokia and BlackBerry – stocks that most of them knew nothing about (financially, at least). If you’re going to invest in a company, start by reading up on it. Websites like the London Stock Exchange and Hargreaves Lansdown list important bits of info.

Also, invest in companies which operate in industries you’ve got a relatively decent understanding of. If you play smart, think logically and listen to the news, it’s easier to make gains. If electric cars are only going get more popular, we’ll probably need more charging stations – so what are the companies that make those? Biden’s now in office, so what does this mean for cannabis and green energy stocks? *hint hint* *nudge nudge* *wink wink* etc.

YOU NEED TO PAY TAX ON YOUR EARNINGS

This is very important. You need to pay tax on the profits you make from trading. Don’t forget this. 

NEVER PANIC SELL AT A LOSS 

Do not smoke 40 cigarettes in a stress-induced panic or sell your shares the first time your portfolio gets hit. The stock market is a bumpy beast and you’ll inevitably be down at some point. When this happens, do not sell if you can stomach it. Case in point: I invested in a company at 125p a share and ended up selling at 101p because I was shitting myself. It’s now sitting at over 240p and I hate myself. 

IN FACT, YOU WILL HATE YOURSELF MOST OF THE TIME AND CONSTANTLY REGRET YOUR DECISIONS, REGARDLESS OF WHAT THEY ARE 

Is there really any winning in the stock market when you’re consumed with self-doubt and constantly second guessing every decision you make?

Here’s what will happen: you will do your research, eye up stocks to potentially invest in, forget to throw money in and become slowly consumed with range when you realise it's massively up a few months later. When I noticed the price of Bitcoin was steadily rising, I thought to myself: ‘Who would benefit from this? Ah, the companies that mine Bitcoin.’ One of those companies was Riot Blockchain, which was two quid when I first spotted it and is now worth £40. If I went ahead with my planned investment, I would have loads of money now. Instead, I do not.

DO. NOT. BUY. THE. RISE. 

This is my most important advice to you, because it’s cost me the most money. I am definitely a gambling man, so I’m easily swayed by the potential of doubling my money in 24 hours. Here’s how to avoid getting caught out.

If you suddenly notice a stock is up by an insane amount – say, 20 or 30 percent in less than 24 hours – don’t do what I do and jump in thinking it will continue to rise. The chances are it’ll drop the next day as investors dump their shares to take profit. GME went from $50 to nearly $400 in a few weeks, but the people who bought into the hype late are still down now, despite the fact it’s recovered to over $250 at the time of writing. 

SOME LAST VERY IMPORTANT RULES:

If you’re planning on investing, make sure you don’t invest any money that you cannot afford to lose. More importantly, recognise the inevitable ups and downs of the stock market. There will be times when you lose money and others where you make it (and hopefully lots). The key to winning, if there is such a thing, is patience, the willpower to not check your phone every five minutes and a whole load of blind courage.

@MatOmbler