Getting started in the business of investing is much easier than it used to be. No longer is the field restricted to the wealthy or large financial institutions. More and more these days mums, dads, students and even children are trying their hand at what used to be the exclusive playground of the haves.
However before delving into what is a very exciting world you should assess what type of investor you actually want to be. In the thirty years that I have been investing I have seen people who haven’t answered this question come and go and lately I’ve seen it happen with alarming frequency.
Think about it for a second…. have you really thought about what you need to do to start creating wealth for you and your family. If not you need to seriously consider what type of investment style would be best for your position.
Types of investors
The buy and holders of the community put their money into shares that they feel are good value and hold them for expanses of anywhere between 1 and 50 years. This investment style is most suited to people who are long term orientated by nature, not looking for a quick profit and have an eye for good companies. The most famous proponent of such an approach is the world’s second richest man, so you could say that it isn’t such a bad style.
Day trading is the complete opposite of the above approach and involves individuals who buy and sell shares in a very short period generally intra day. If you have a lot of time and are prepared to watch market movements very closely then this approach may be for you.
The next thing you need to look at is what sort of analysis you want to conduct on the shares that you are considering. Generally there are two schools of thought one being fundamental and the other technical. You will always find people pushing one or the other but really you should look to try and incorporate a blend of the two.
Fundamentalists tend to look at company profits, management direction, future plans/growth prospects etc.
While those with a technical background look at charts employing various techniques, ratios, indicators and trends in order to identify which shares they want to look at further.
You should realise that relying wholly on one or the other is not the wisest thing to do. For example a chart that has all the indications that a share is going to be a good choice for the future is useless if the company is going to file for bankruptcy so as I mentioned earlier a blend of the two should be considered.
When you are deciding what type of investor who want to be one of the most important considerations is your risk threshold, or in other words how much you are willing to loose. This again will have an impact on the investment style that you choose and will also have a relationship to the level of returns that you may be seeking.
Investors come in many forms, there is no right or wrong way and different things work for different people. It is vital that you decide which method best suits you and that you stick to this method.
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