Stock market investment for beginners: 3 things I wish I’d known

The idea of ​​putting money into the stock market for the first time may seem daunting. But every investment journey starts somewhere.

Knowing more about investing will hopefully help your results. Here’s a trio of lessons I’ve learned the hard way from my own experience. They continue to influence my approach when looking for stocks to buy.

1. Business is not an investment

It is difficult to make a brilliant investment in a bad business. But it’s surprisingly easy to make a terrible investment in a great business.

The reason for that is simple. Millions of investors around the world are looking for great businesses in which to invest their money. So, if they find it, they can decide to put the money in it. The demand for these stocks increases in value. That can mean they are expensive.

But even successful companies with huge profits can see their stock prices fall. If I had invested in it Intuitive surgery a year ago, for example, my investment would now be worth 11% less than I paid.

But robotic surgery specialists have what I think is a good business. Proprietary technology is desirable, selling peripherals offers high profit margins and product training helps create loyal users.

In its most recent annual reporting period, Intuitive grew sales 31% year-over-year and net profit grew 61%. But trading at a price-to-earnings ratio of 69, the stock looks too expensive for my taste.

2. No company is infallible

Here are two questions. First, what is the best company on earth when it comes to future financial prospects? People may have different answers, but clearly there are some great companies out there that I know of.

Now to the second question. Which company is guaranteed to be here a century from now? Too much? How about an alternative question. Who is guaranteed to be here ten years from now?

The truth is, no matter how good a company is, its future cannot be guaranteed. It could be wrong, or it could be going through circumstances beyond your control. From an investment perspective, that leads me to use diversified risk management.

Even when I find the best investment ideas, I only allow one company to make up a proportion of my stock portfolio.

3. Knowledge is power

Investing in a company backed by little or no knowledge may seem strange. But this is a common mistake and definitely one I’ve made in the past.

When it comes to investing, knowing about the company and the industry is important because it helps me assess prospects, and then compare them to their value. Successful stock market investing is all about buying stocks that are undervalued. So I need to be able to evaluate the value of the company. I do that by sticking to what I know.