CAN YOU LEARN ANYTHING FROM A GAS MAN THAT LOVES INVESTING?
I'm sharing something I’ve found helpful, but I also recognize this isn’t for everyone. There are a few barriers to keep in mind, and avoiding these might be best for some people.
Things to Consider:
A. Difficulty in discerning quality information
Many people struggle to separate valuable insights from noise. For example, YouTube is full of both useful advice and time-wasting content. Knowing the difference is critical.
B. Investing isn’t for everyone
Investing requires significant time, discipline, and passion. It can be stressful and isn’t a quick way to wealth. If you’re not willing to commit to learning and staying disciplined, it’s better to steer clear.
C. Requires disposable income
Investing should only involve money you can afford to lose without jeopardizing your financial stability. Strong budgeting and financial management skills are essential to ensure you aren’t accumulating debt just to invest.
D. Understanding the types of investing
There’s a difference between gambling on risky investments (e.g., day trading volatile assets like cryptocurrency) and long-term value investing. The latter involves buying small portions of financially sound companies at reasonable prices and holding them for 5–10 years.
A Step-by-Step Guide for Those Interested:
Step 1: Practice First
Start with a dummy account (no real money) to practice and familiarize yourself with the process.
Consult a financial advisor for professional guidance.
Always remember that investing carries risks, and you can lose money. Your decisions are your own responsibility.
As a rule, avoid investing more than 10% of your savings into a single investment and aim for diversification across sectors.
Step 2: Screening Companies
Use tools like Finviz to identify companies based on these criteria:
Market Cap: $10 billion to $200 billion
Net Profit Margin: 20%+
Price-to-Earnings (P/E) Ratio: Under 20
Long-Term Debt Ratio: Under 1
Return on Equity (ROE): 20%+
Price under the 200-day Simple Moving Average (SMA)
Step 3: Analyzing Companies
Use Simply Wall Street (website or app) to gather detailed data on companies from your Finviz list.
Focus on metrics like Value, Future Growth, Past Performance, Financial Health, and Dividends.
Avoid paying for unnecessary subscriptions; just take notes of the free data.
Step 4: Scoring Companies
Assign scores based on metrics. For example:
Value: 6/6
Future Growth: 3/6
Past Performance: 6/6
Financial Health: 5/6
Dividends: 0/6 (if no dividend is offered)
Adjust scores:
Add 2 points for each positive factor.
Subtract 3 points for any identified risks.
Example:
Alphabet (GOOGL) might score 30/24 based on this approach. Compare multiple companies to identify the strongest candidates.
Step 5: Use Yahoo Finance
Review summaries, historical performance, and news updates for your selected companies.
Set alerts for price drops (e.g., -10%).
Check analysts' opinions, controversy levels, and sustainability metrics.
Verify revenue and earnings growth trends to ensure the company is performing well.
Step 6: Buying the Stock
Aim to purchase shares on market dips or bad news days when strong companies are undervalued.
Step 7: Choosing a Platform
Open an ISA (or equivalent account) with a reputable investment platform that offers low fees and is backed by a compensation scheme (e.g., FSCS in the UK).
Step 8: Monitoring and Adjusting
Add your investments to tools like Yahoo Finance to track performance.
Set stop-loss limits if you’re uncomfortable with potential large losses. Personally, I hold onto growing companies even during drops and buy more if their fundamentals remain strong.
Step 9: Partial Profits
Consider selling a portion of your gains if the stock becomes overpriced while leaving the rest invested.
Step 10: Long-Term Perspective
Aim for a 20–40% annual return, but this varies depending on market conditions and your skill.
Final Thoughts:
I’m not a financial advisor, just a plumber sharing what’s worked for me in the stock market. Your success depends on your research, strategy, and risk tolerance. Be cautious, stay disciplined, and enjoy the journey!