By Amy Johns Jeffrey
You’d think the first considerations in buying stocks, or a particular stock you’ve taken a shine to, as a short or long-term investment would be things like:
- Whether to go through an online brokerage firm, or mano-a-mano with a professional adviser;
- Your price point for what you’re looking to purchase (and what you can afford to lose); and
- The debate between saving broker fees by buying direct or taking the plunge with an IFA.
In fact they’re not even close.
And that’s the problem with most people’s investment strategies – they prescribe before they diagnose.
Josh Brown of Ritholtz Wealth Management (and The Reformed Broker blog fame) turns his typically candid lens towards this issue when he writes:
“I meet people all the time who ask me what they should invest in. It always freaks them out a little when I say ‘I don’t know’. They think I’m joking. They’re waiting for a stock tip or a mutual fund recommendation or maybe a catch-all rule of thumb they can apply. I go on to explain that without having any information about what their future needs will be, I can’t offer anything useful to them. There are no stock tips, fund picks or rules of thumb that will actually help them.”
Stock-picking without financial objectives is a fool’s game.
Only once you’ve established your goals, and ensured that whatever funds you’re putting towards achieving those objectives is not part of the monthly food bill, mortgage commitment or even ‘fun money’, can you start thinking about the stock market, stocks themselves and the principles of investing you’ll need to keep you sane during the process, whether you’re day trading (please don’t – I’ve yet to meet a truly wealthy day trader who doesn’t either; also have a day job or who actually makes money by writing books about day trading instead of by doing it), or taking professional advice (much better).