Create Models

When not sure whether to invest in a company or not you should create a model to weight the positives and negatives. While creating one be as specific as possible to get the best perspective of the matter. 

 

There are 2 models to choose from:

 

Porter's Model - This helps understand the dynamic of the industry and highlights potential threats or opportunities.(Picture on top)

 

SWOT Analysis - This analyzes, evaluates, and highlights a business's Strengths, Weaknesses, Opportunities, and Threats. (Bottom picture)

NYU "Investing Like A Wallstreet Pro" , 2024

                                                                                  NYU "Investing Like A Wallstreet Pro" , 2024

Figure out your risk Tolerance

Before investing you must understand how much risk you are comftorable with. Remember, the higher the risk, the higher reward. 

 

*Typical rule of thumb; 100 - your age = the starting point you should put in stocks. This is not something you have to listen to, ut some people do.

 

Below is a Charles Schwab risk tolerance questionnaire. It will give you a better idea of how you should be investing your money. You will get points depending on your answer and then be placed into a category. Then based on your category you could see an investment strategy and how to diversify your portfolio!

General Tips:

  1. Start early - the early you start the more you will make because of compounding 
  2. Stay Informed and BE PATIENT - Keep yourself updated with market trends and general news about the company. Don't become emotional about short-term changes. If you want to be successful you must stay on course and be patient with your investments.
  3. Seek advice if possible - Try to consult with a financial advisor. This is especially important for beginners so you can keep yourself out of complex situations
  4. Aim for longer-term investments - I'm not saying only do long-term, but by doing that they yield better results and reduce impacts of market volatility
  5. Reinvest your dividends -  Use dividend reinvestment plans and buy more shares to help compound your returns over time
  6. Know when to exit - typical reasons to exit are you've reached your financial goals, need to rebalance your portfolio, consistent underperformance, better opportunities, and risk managment.
  7. Think ahead -  the stock market is a "forward-looking mechanism" and tries to move towards where a company will be in a few months

Where to invest as a beginner

As a beginner Robinhood and E*Trade are good brokers. They both offer commision-free trading, no account minimums, Options trading, crypto trading, and much more. There is not a better option between the two; pick whichever one suits your needs best.