Every man and his dog has discovered share-investing thanks to Covid-19. There's nothing like massive share price falls to bring in new investors. Even my teenage son tells me his friends are "all" buying shares.
In a year or two it will either be a painful memory for some of these investors or will be the beginning of a lifetime of investing that will pay off handsomely over time.
I speak from experience. By my late teens I was tinkering with buying my own shares, having inherited a small number of Winstone shares several years earlier. Over the next four years from 1983 to 1987, I fell into a group of first-time investors who thought they had the Midas touch.
More than 30 years later a friend still points out a few cringe-worthy predictions I uttered in my naivety at that time. I see postings by some young investors saying the same things today.
Come the 1987 stock market crash I was relatively lucky on the loss front because as the investment world went mad, I was spending my already realised gains backpacking around Latin America.
This year's batch of new investors have it much easier than I did in the 1980s. I had to save a king's ransom from my part-time university jobs for each separate share purchase. Today you can invest just a few dollars at a time through the likes of Sharesies, Kiwibank's Hatch or, if you have a few dollars more, InvestNow. Investors today have access to endless information online. I just had the business pages of the newspapers and the odd tip sheet from the stockbroker.
Take the plunge, but my best getting-started tips are:
Never invest more than you can afford to lose
It's fine to take a punt on the markets to learn. But you shouldn't be using your groceries/ rent/mortgage/petrol money, your education fund or any money you are relying on for the future. You may lose all of it.
Invest for the long term
Success isn't judged in hours, days or weeks. If after 10 years you can look back and see you've made more than you would have by putting the money in the bank, then you have been truly successful.
Drip feed your investments
If you're investing a little regularly you'll most likely do better in the long run than saving it all up ad trying time the bottom of the market.
Learn from your own mistakes
Reflect and learn from your actions. If you buy shares in sure-fire winner and it tanks, then ask what you could have done better. This is where investing tiny sums such as $5 a week really is worth its weight in gold.
Learn from others' mistakes
Even better than learning from your own mistakes is learn from others. Read books, or join discussion groups such as the Sharesies' Share Club or Hatch Investors Club on Facebook or the Sharetrader.co.nz forum. Just be aware that he who shouts loudest on these forums isn't necessarily correct.
Spread your investments
You need to diversify your investments across multiple different companies, industries, markets and regions of the world. When one goes down, the others often balance it out.
I know your KiwiSaver or another fund doesn't have the adrenaline rush of individual equities, especially the likes of an Apple or Amazon. But a stock-market-based growth fund goes up and down in a less volatile manner usually. You're just more protected because your money might be spread across 100 or more investments.
Beware of FOMO
The fear of missing out is a very powerful driver that sometimes makes us take risky positions. There is always another opportunity; another black swan event such as the 1987 stock market crash, the Asian Crisis, dotcom bubble, global financial crisis or pandemic. These unforeseen events come around every 10 years or so and provide good buying if you can hold your nerve.