Personal investing isn’t rocket science, in fact, investing is one of the easier ways to build a sustained income. I’m a web developer by trade, I’ve toyed with blogging, affiliate marketing, applications, games and a several other income producing endeavours, but I’ve never found anything as simple and hands off and as investing in stocks. Equities, better known as stocks or publicly traded companies are very accessible to most people; and yet when I talk about them to friends and colleagues it seems like a lot of folks think investing is a mysterious, incredibly hard or scary endeavour, or resort to calling it outright gambling.

Typical responses are, “I should start investing”, “I don’t really do anything with my money”, “I have a financial advisor but I don’t really know what he does with my money”, “Isn’t investing like gambling?”. A lot of people seem afraid or outright apathetic about managing their own wealth? Many of us never learned about personal finance in school, myself included, and there is often a psychological taboo attached discussing money. It’s time to get over these challenges and start investing.

First, let’s talk about the elephant in the room, investing in stocks is not a get rich quick scheme, in fact, the process can be quite slow, so the sooner you get started the better. If you’re looking for a get rich quick scheme, then this is not the source. I’m also not going to tell you what to invest in, teach you how to invest, or give you strategies, there is already a plethora of resources and fantastic information on this. What I am going to tell you about is the mindset you need to be successful and what you need to lookout for. Once you prepare yourself, everything else will fall into place. Now it’s time to get over your fear or whatever it is that’s holding you back and get started.

Over 20 years of casual investing

I started what I call casual investing in 1998 when everyone was euphoric about this so called “New Economy”, and how it was “Different this Time”. First tip, it’s never different this time, in fact it’s always the same and always has been all the way back to the 1600s during the Dutch Tulip Bulb Market Bubble. Bubbles burst, good companies make money, bad ones don’t, and you can’t always predict this, but it doesn’t really matter, we’ll get into that later.

When I started over 20 years ago, I bought a book at my local bookstore and read up on investing in stocks. I was pretty sure I wanted to invest in Starbucks and I only had a few thousand dollars. Eventually I got up the courage and bought it along with a couple of other “boring stocks”. I felt confident in my choices because I understood what Starbucks did, I liked Starbucks, I had read about how great the CEO was, and I could see with my own eyes that they were opening up on every corner of my city.

While everyone around me was investing in companies like Nortel, JDS Uniphase, Yahoo, Excite and other internet related companies, some of which I can no longer even remember, I was investing in boring slow moving companies like Starbucks. I remember feeling left out, in investing this feeling is known as FOMO “Fear of missing out”; these guys had stocks that we’re going up 10% or more a day at times! Starbucks had actually gone down since I had purchased it. Fear and Greed kicked in like it did for so many others, I sold my boring stocks and put everything into JDS Uniphase and some other forgotten dot-com companies. I had discarded all my research and discipline, everything that felt right I threw out the window; I had jumped on the dot-com bandwagon and I had figured it all out, I was going to be rich in no time.

At the time there was a voice of reason, a colleague who was older with more experience than me ringing alarm bells and telling me that this was a speculative bubble, and using crazy logic like how can a company run by a handful of people be worth more than large US car manufacturers. Of course myself and others all laughed and dismissed him. He didn’t understand the world had changed and this was the new economy, it was different this time; only it wasn’t. The dot-com bubble came crashing down and I lost everything.

The lesson here is don’t be greedy, there are only two things you have to be afraid of when investing, Fear and Greed. They will always lead you astray, you will make bad decisions and lose if you let them take hold of you.

Fast forward to the 2008 Financial Crisis. I was not following the markets very closely at the time as I had a lot going on in my life and this was probably a good thing. I did miss a great buying opportunity, but I didn’t panic and sell. Similar to thinking equities would go up forever just before the dot-com bubble, people thought stocks would go down forever in the financial crisis. Most good companies had completely rebounded 2 years after the financial crisis, but for many, they had already locked in massive losses forever by selling at the worst time and dismissing the market as too hard or even rigged.

Fast forward again to 2015, the Chinese stock market is facing turbulent times. I watch one of my long held semiconductor stocks drop double digits in days. They are a large manufacturer of Apple iPhone components. For the first time in years I panic. I was having an off day to begin with and on the worst morning of the crisis I sell my largest holding. On the subway to work I have a sinking feeling in the pit of my stomach, I realize I’ve made a mistake even without knowing the current status of the markets. As I walk out of the metro I see the stock has already recovered within an hour several percentage points. I feel stupid and buy the stock back locking in a loss and learning an expensive lesson.

By the time a market crisis is in full swing it’s too late to sell, you might as well just ride it out. A crisis is the worst time to sell, but it’s the perfect time to buy.

Choosing stocks

I mentioned earlier that I consider myself a casual investor. I do watch my stocks daily, but there is really no need to, and on average I make less than 2 or 3 trades per year. While I have learned a lot about investing over the years, I still don’t have a full deep understanding of the fundamentals in earning reports and spreadsheet data, but I still feel very confident about my investments, my future and retirement.

So how can you be a successful investor without knowing anything about spreadsheets, statistical analysis and all the other metrics associated with investing? Invest in good companies. I’m not saying researching and learning about companies and metrics won’t help you, of course it will, but the first two rules about avoiding fear and greed are more important. I bet you can name at least 10 companies right now off the top of your head. If you were to invest in them today and not look at them for 10 years, they would likely make you at least 5% per year over a 10 year period and that’s a conservative estimate. Just think of the big players, the ones you see plastered on buildings everywhere. Big banks, large retailers, super popular devices, the products people are using every day and can’t live without. Take it a step further and find out who supplies goods and services to these companies. Who makes the parts inside your smart phone? Where does your power come from, who’s maintaining all the cell towers, who picks up the garbage, who maintains buildings? You can go as deep as you want, or you can just buy companies you know and trust.

Keys for Success

Greed makes you buy bad stocks and take unnecessary risk, fear makes you sell good stocks and lock in loses. These traits have lead to almost every mistake I’ve ever made investing.

Greed takes hold in many forms, one form is a lack of diversification. Surely you have heard that diversification is important. The more diversified your investments are the less risk you take and the less likely you are to lose a large chunk of capital all at once, but this will also make your gains smaller. Putting all your Money into a couple of stocks like Amazon and Apple could have made you rich, but then again you could have picked the wrong ones like Nortel and Enron and lost your portfolio. Even Amazon lost a lot during the dot-com bubble and took many years to recover. This is the Greed I was talking about.

Fear is equally dangerous, it makes us do irrational things, and it’s arguably more difficult to resist than greed. Your stocks are doing great, and then all of the sudden one day they are not, maybe it’s a Black Swan event like 911 or the Financial Crisis, or maybe it’s a recession or some other bad news. This is the worst time to sell. If the fundamentals of why you initially bought the stock are still intact, then there is absolutely no reason to panic sell, your equities will bounce back, give them time, it’s hard, but you will thank yourself in a year or two. Warren Buffet said “Be Fearful when others are greedy and greedy when others are fearful.” If you the have funds, look at a crisis as a buying opportunity instead of a selling opportunity.

I am by no means an expert, but I’m quite happy with the return my investments have provided over the years. If I had taken the advice written here when I first started investing 20 years ago, I’d be a millionaire today. This piece is meant as a starting point to dig deeper, do the research you feel is necessary and get your money working for you. No one cares more about your finances than you do. A financial advisor is a good start, but remember they likely want to sell you bank products or take a cut or commission. Most of the time the actual bank stock will produce a larger return than any of their products and it’s also nice to know that the bank is paying you for a change.

Another thing to remember, you will inevitably lose money on certain picks, but it doesn’t matter if you are investing in good companies and are diversified. You can’t predict every event that might happen, but if you have a nice basket of funds the good ones will out-weight the duds.

Don’t stop here, research is still very important. Remember that opinions on the internet be they an article or comment are random people that don’t know you or your personal situation; that includes me. Everyone has different risk profiles and a professional Advisor can help you figure out what yours is. Get as many opinions as possible and take them with a grain of salt before buying or selling a stock, and remember the two most important rules starting out, don’t make decisions based on Fear and Greed.