The crisis due to the coronavirus pandemic has not discouraged you, on the contrary and you want to take your first steps on the stock markets? You are quite right ! It is better to ignore the context and invest in the stock market as early as possible and over time, in order to take advantage of the returns on this asset class and smooth out the risk inherent in the stock market as much as possible.
In this article, find out what you need to know before setting foot in the stock market, the tools at your disposal to analyze the financial markets, the procedure to follow to buy your stocks and then determine when is the right time to resell. Finally, we unveil the 5 tips to follow from the Café de la Bourse to put all the odds in your favor when starting on the stock market.
What are the prerequisites before starting an investment in the stock market?
At the time of start on the stock market, it is better to be aware of the advantages and risks involved in this type of investment. Indeed, even if equities show the best performance over the long term (they return on average 8.3% over 30 years and 13.7% over 40 years each year according to a study at the end of 2018 by the Real Estate and Land Savings Institute), they are also risky since the capital is not guaranteed and you are therefore not sure at all times that you can recover your initial investment. It is therefore essential when one wishes to invest in the stock market to consider this investment over the long term and not to devote to it the sums that one might need in the immediate or short term. We can even consider that we should invest in the equity markets, at least to start on the stock market, only money that we are ready to lose. In addition, your investments in the stock markets should only represent a part of your wealth, which varies according to your degree of risk aversion. The more you have a risk averse profile, the more the part in investments with guaranteed capital or low risk (bonds for example) must be important and risky investments, such as equities or alternative investments (gold for example), must be be weak. Conversely, if you are not averse to risk, you can then devote a significant portion of your assets to equities and other risky investments, provided of course that you always diversify your portfolio.
How to analyze the financial markets for a beginner in the stock market?
To invest in the stock market successfully, it is necessary to master the basics of financial market analysis. Beginners on the stock market must therefore be keen to learn fundamental analysis in order to select the stocks that interest them according to the strategy they have chosen to adopt: value, growth or dividends strategy. By studying the quantitative fundamentals (evolution of turnover, profit, the main financial ratios, etc.) and the qualitative fundamentals (possible competitive advantages, patent holding, quality of management, etc.), the investor will even determine whether the company in which he plans to buy shares is a good investment or not.
To determine the best time to buy or sell a security, it will be a good idea to turn to technical analysis. By studying the prices and volumes of transactions in a given security, the investor will be able to determine whether or not it is appropriate to sell his share at a given time.
Fundamental and technical analysis are two complementary approaches that any beginner stock investor would do well to combine to make the best possible investments.
It is possible to train in these two types of analysis but also in stock market investment as a whole via the many articles in the specialized press but also thanks to the educational content offered by the various stock brokers who make available to new customers for webinars, white papers and seminars.
How to buy stocks?
The procedure for buy stocks is relatively simple. First, you will first have to open a medium that will allow you to house your securities: PEA, securities account or even life insurance via unit-linked media. Then, you will have to choose the stock broker who offers both the product on which you want to hold your securities and a choice of securities that suits you. Indeed, not all brokers give access to all the shares of all companies in the world and if you want to invest in a specific market, it is better to take this into account. Also, of course, compare the tools and services offered by the broker and the prices charged. Finally, once your financial intermediary has been chosen, all you have to do is place the stock market buy and sell orders for each security you wish to hold in your portfolio.
Be careful, this obviously requires being using the interface of your broker and above all being well aware of the different kinds of stock market orders that you can use (limit stock market orders, Market at the best limit, stock market orders, stock market trigger orders, stock market trigger range orders, etc.) in order to choose the type of order that will perfectly match your investment scenario. We advise you to familiarize yourself with the placing of orders to open a demo account and to carry out some ordering on this educational support before actually going public with a classic account.
Should we focus on French or foreign stocks?
It is tempting, especially when you are starting out on the stock market, to want to confine yourself to what you know and invest exclusively in the French market. Thus, a good number of French individuals limit themselves to the CAC 40 and only invest in large listed French groups such as Air Liquide, L’Oréal, Total, or BNP Paribas for example. However, it is recommended, with a view to diversifying one’s holdings, in order to reduce risk, to invest in several different companies, from different activity sectors, with different capitalization (world leaders but also small and medium-sized enterprises) and also from different geographical areas (France, Europe, US, Japan, China, emerging countries, etc.).
It is certainly logical to favor to a certain extent a sector of activity and a geographical area that we know well. The great investor Warren Buffett indeed underlines that “the risk comes from not knowing what one is doing”. But it is nevertheless essential to have a diversified portfolio, including in terms of the location of the companies held in the portfolio. The novice stock market investor must therefore ensure, from his first steps on the stock market, to have sufficient lines (number of securities held in the portfolio) and that these relate to companies from various sectors of activity and geographical areas. .
How do you know when to sell when you start on the stock market?
If the first thing a newbie stock investor thinks about is how to know which security to buy and when, it will also be important, at the very moment you buy a security, to know what will be the procedure to sell it.
Two major difficulties will present themselves to you. First, be careful not to keep a stock that is inexorably declining in your portfolio, hoping that it will rise one day without relying on tangible and concrete elements by trying to convince yourself of the validity of the famous saying “not sold, not lost “. Be careful, because “it is better to lose a hand than an arm”. Finally, you should also not resell a title too early and miss out on a significant gain. The best thing is to set a precise rule in your trading or investment plan, in line with your investment schedule and investor profile and resell a security as soon as it has exceeded x% of capital gain and y% loss.
5 tips from Café de la Bourse for a beginner in stock market investing
First, only invest money that you are prepared to lose, at least in part, and that you do not need in the short or medium term. Then, to start on the stock market you will have to invest little and regularly to smooth the risk of entering a higher. When investing in the stock market, also have your investor profile in mind and build your trading strategy according to your investment horizon, your risk aversion and your investment objectives. Whether you opt for a value, growth or dividend strategy, always take care to choose your securities according to concrete and tangible criteria. Investing in the stock market on a whim is rarely a guarantee of success! Finally, stay calm and keep your cool no matter what. There is nothing worse than succumbing to panic when investing in the markets even if this is more common than you might think, especially if you are new to the stock market.