How to become a badass investor!
Yo! So you want to start investing in the stock market but you don’t know how to do it? You think you will suck at it just because you were not good at math or simply because you don’t have a financial degree? Or even worse, you have a voice in your head that keeps telling you “You? An Investor? Yeah right… You are going to lose everything in 1 second and live in welfare… there’s no point trying…. lets binge watch Netflix instead!”
But for some reason you landed here! Here you haave a blog post about how to become a badass investor and there’s something deep inside of you (call it instinct or your gut) that says “but… maybe this is just what I was looking for…”. I don’t believe in strikes of luck, I believe that life has a way to give you the tools you need to solve/overcome your problems and achieve your biggest desires. You only have to be present for those opportunities.
I have 5 steps you help you become a badass investor and this steps are:
Step 1 – What is your why?
Step 2 – Take Action
Step 3 – Educate yourself and research for stocks
Step 4 – Monitor your stocks
Step 5 – “I’ve got this”
Step 1 – What is your why?
“Ok Derek, can you tell me now how to become a badass investor already please?”
Yes of course, the first thing you need to do is to set a goal and ask yourself the following questions:
- Do I have enough money to invest in the stock market?
- Why do I want to invest in the stock market?
- When do I plan to use the money I invested?
- Am I willing to put up the required work?
Asking this questions is super necessary an important, having a clear why is what will help you find your path when everything goes south (yes, it can happen!), one of the first mistakes that new and seasoned investors make is forgetting why they started investing in the first place and by losing that perspective, they start behaving irrationally with their investments, making mistakes, losing a ton of money and quitting investing. Lets uncover your why shall we?
Do I have enough money to invest in the stock market?
Let’s start with the basic, it takes money to make money, we all know this but how much money is required? Well, in order to open your investing account, most online brokers will ask you to make a minimum deposit of $1,000. Wait, what? “I only need $1,000 to start investing?” yes, that’s it, that’s the minimum for most online brokers, and to be fair, is the minimum I personally recommend to have to start investing.
I can hear you!!! stop it!!! “Meh, I don’t have $1,000… Who has $1,000 laying around this days?”… Do yourself a favor a shut that voice, that thought comes out of fear, fear from stepping out of your comfort zone, doing something different, trying something new… Let me tell you something, if you want different results, then you have to do things you haven’t done before.
If you don’t have that $1000, make it your goal to find it, save money, work overtime, cut on your Starbucks expenses, save money on gas by carpooling, put $50 per week in a jar and in 4 month you will have that $1000 to start investing! Your only goal right now is to find that money doing whatever you have to (keep it legal please ;)).
And if you still can’t find that $1,000, then there are a couple online brokers that will let you open an account with $5 and will let you buy fractional shares… Hey, you’ve got to start somewhere right?!
Why do I want to Invest in the Stock Market?
If you are answer is “To be filthy rich” then you will have to ask yourself for a better why. Yes, all of us want to be rich and that is a fact but we all have different reasons why, and to be honest, you only might what to have enough money to secure your retirement.
Some of those reasons can be:
- I want to have enough money for my retirement
- I want to create a financial legacy for me and my family
- I want to have enough money to pay for my kids college/wedding
- I want to create a passive income that will generate money while I’m sleeping
This why is very important and personal, this answer is what you are going to remind yourself when you feel like quitting, that “this is just too difficult” or “I’m not smart enough to do this”. Trust me when I say to you, the only reason that I was able to keep going after I made several mistakes when I started Investing and lost a lot of money by being deliberately reckless, it was because I said to myself “Derek, if you quit right now, you will not be able to secure your retirement”. The pain of not having money for retirement was bigger than the pain of acknowledging that I was wrong on my decisions and it was only my fault that I lost money.
If you are going through hell, keep going – Winston Churchill
To finish that quote, if you stop and accept your fate, you are done… but if you keep going, you will achieve your results.
When do I plan to use the money I invested?
The stock market always have periods of great markets where everybody makes money and bad ones where everybody lose money, the beauty of the stock market is that the periods where people make money are way longer and rewarding than the ones that people lose money. What I’m trying to say is, if you plan to use the money you invested in the next 6 months then the stock market is not for you.
Nobody knows what the stock market is going to do in the next 6 months or next year, but one thing is certain, in the long-run, when you plan to invest for +10 years, you will end up making money, this has happen for almost 2 centuries and it should stay like that in the future.
The longer you stay invested in the stock market, the better your reward is going to be. If you want an example, you can learn how to turn $100 into $500,000.
Am I willing to put up the required work?
We have to be honest, if you really really really want to achieve your why, then you have to make a responsibility to learn as much as you can about the stock market and how to successfully develop a strategy and learn from your mistakes.
You have to be willing to put at least a couple hours a week into researching/monitoring your stocks and learning more about the stock market, but, if you find it more important to binge watch that new Netflix series that your co-worker recommended to you, just because you had a rough week and you deserve it, then stock market investing is not for you.
Your actions have to be aligned with your desires, if you want to become financially free, have plenty of money and not worry about it, you have to act and think like a financially free person who doesn’t worry about money, only by doing this you are going to do whatever it takes to make it your reality, or in other words “Fake it ’till you make it”!
Step 2 – Take Action
Open your investment account
But.. but… but… NO BUTS ALLOWED! You said that you wanted to invest right? I thought I saw you nodding about it and day dreaming about the endless possibilities that having a passive income can bring into your life and the life of your family and friends! This is not the time to say “Well, I can do it tomorrow, or next week”, do it now!
This is your time to research for a good online broker that will let you buy/sell stocks by yourself. You need to have an account in order to invest in the stock market and the best thing is that you can open it, fund it, and wait until you feel comfortable to buy your first stock. Great opportunities to buy stocks at a discounted price don’t happen often, so is always a good idea to have everything ready to act upon those opportunities.
There are plenty of great brokers. When researching for a broker, I look for the following:
- Low fees: How much you are paying to buy and sell stocks its critical, fees adds up and you don’t want to over pay. Bonus points: Brokers that will let you buy ETF’s for free provide a huge advantage
- Easy of use: most brokers will let you open a paper trading account which will let you use their interface, a simple easy to use interface is always a bonus
- Funding Requirement: I tend to prefer brokers that let you open an account with as little as $1000, anything over I believe is just an overkill.
- Activity/Low funds fees: there are brokers which will charge you a maintenance fee is you don’t meet the minimum monthly balance or if you don’t trade at least once every couple of months. Be aware of this fees and make sure you meet the minimum requirement to avoid those fees being charged
Since I’m a Canadian Resident, I use Questrade (Affiliate Link) which complies with all those requirements, if you happen to open an account using my affiliate link or QPASS Key: 345608712407719 you will receive a welcome bonus of $25!
If you don’t know what is an ETF or what is the difference between Stocks and ETF’s, you can find it here
Step 3 – Educate yourself and research for stocks
You made it this far? Awesome! This is the most critical step if you want to become a badass investor, is all about educating yourself and researching for great stocks, I know it can sound really daunting and complicated, but you will be surprised how easy is to understand the basic rules of investing and how simple is to research for great stocks.
What separate a broke DIY stock market investor from a badass stock market investor is the fact the latter is actually spending the time learning about investing, researching their own stocks, understanding the stocks they own and not following the herd when things go up or down! A broke DIY stock market investor will buy and sell stocks out of recommendation without even knowing how the company makes money and will constantly feel defeated and lose money by their own ignorance.
You know nothing about the stock market? don’t worry, I’ve got you covered!, I have a series of posts where I will teach you about the basics of the stock market, I wrote about what is the stock market, how it behaves, how to buy and sell stocks and what is the mindset of a successful investor. You can access this training here:
Stock Market 101 Part 1: What are stocks and more
Stock Market 101 Part 2: Stock Analysis
Stock Market 101 Part 3: Types of Stock Market Orders
Stock Market 101 Part 4: Technical Analysis
Stock Market 101 Part 5: Mindset and Psychology for success
If you want to go from “I don’t know what I’m doing” or “I’m better paying someone else to invest for me” to “I’ve got this” then you need to educate yourself, because you and ONLY YOU knows whats better for you, only YOU can decide which stocks are good or bad for your own strategy and are capable of helping you reach your goals.
You will makes mistakes, I had my own share of those, but the main difference between making mistakes and failing, is that when you make a mistake and you learn from it, you understand how it happened and how can you prevent it, you are not failing, you are learning and getting better. But if you make a mistake, get depressed and anxious (it can happen, we are humans, don’t worry about it 😉 ) and decide to quit, then unfortunately you have failed my friend, so lets avoid that please.
I love this quote, I love it so much that I have a big print on at home to remind me every day about fear and failure:
It is not failure itself that holds you back; it is the fear of failure that paralyzes you – Brian Tracy
Don’t worry, if you are patient, humble and you are able remove the noise and focus on what matters (fundamentals, financials and stock trend) you will improve your game. Don’t focus on being right or wrong about stocks, focus instead on understanding the stock and only buying stocks that are good according to your criteria, and with a little luck on your side, you will see your investment grow like a snowball effect, this is because when you buy great stocks, the performance of the good ones will overcome the bad performance of the not so good stocks.
Research for stocks and build your watchlist
The easiest way to start researching for great stocks is to start with companies that you already know. You are right now surrounded by company’s that are traded in the stock market. Do you have a Facebook account? Do you know about Apple products? Have you ever heard about Harley-Davidson motorcycles? What about getting your coffee at Starbucks or Dunkin Donuts? Do you do grocery shopping at Walmart?
All of those companies are traded in the stock market! Good, now I really grabbed your attention and I can hear you thinking “Yes Derek, I know those companies, but how do I know that they are indeed great stocks?” and you are probably rolling your eyes too.
I will share with you some insights of the strategy that I teach in the Money Making Bootcamp course. Its a step-by-step strategy and is the one that has helped me become a badass investor. Here are the steps:
1 – Fundamentals:
When researching for a stock, the first thing you need to understand is what does the company do and how it makes money. You need to be able to understand this because when you buy a stock, you now own a little portion of the company. If you can’t explain to a 5 year old what is the company and how it makes money without losing their attention under 5 minutes, then you shouldn’t own the stock.
Why you may ask? Well, if you don’t understand this basic principle, how are you going to know if the company is going to be affected by recent news, taxes, disasters, new technologies, new rivals, etc?. Only own what you understand, this simple principle will save you a lot of money.
Another question that you should be asking about the company is what makes the company special and why should I own it?. Anything that gives a company a clear edge over its competitor is a good thing in a stock. In example: Apple has a loyal community that will always buy their products. Netflix has millions of users and is becoming more and more difficult for competitors to enter the market (Sorry Amazon Prime…). Everyone uses Google and Google related products/services. We have to eat and a huge chunk of people buy their groceries at Walmart.
2 – Financials:
The sole purpose of the existence of a company is to make money, if a company can’t make money, it will eventually go bankrupt. I like to research the financials of a company, the first time you see a company financial report you might think “OMG… This is just too much”, but in reality, is simple to read financials, you need to look for the following:
- Are they making a profit?
- Are they increasing their revenue?
- What is happening with the debt?
- Are they making money for the shareholders (EPS)
- Do they pay dividends? and if yes, what is the payout ratio?
A good company is one that is slowly but surely making more money (revenue and profit) year to year, that doesn’t have a debt or is on a manageable size, and that is making money for the shareholder (that’s us). Bonus point for a company that pays dividends.
You will also want to look for the following financial ratios and compare them with the competitors: P/E, P/B and EPS. Financial ratios are the best way (and only way) to compare stocks, you don’t say that a stock is cheaper because the share price is lower, instead, you consider a stock to be cheap if the financial ratios are better when comparing it with another competitor. I will say this again, the share price doesn’t matter!
So if by now you made your own story about the stock and you like the financials, there’s only one more step that I like to take before buying a stock and this is:
3 – Trend:
If you truly want to become a badass investor you need to look at the stock chart and understand what is doing, this is not complicated at all. Trend or Trend Following is a strategy where an Investor analyze the stock chart to understand the following:
- Is the trend bullish? Bearish? Sideways trading (dead money)?
- What is the average volatility? As in, is it normal for this stock to have 10% movements in a week?
- What are the critical support/resistance levels? If a stock is having difficulty to go (in example) above $10 and every time that it touches $10 it drops, you might want to wait for it to finally break and climb above $10 before buying it
When reading stock charts I like and recommend using candlestick charts. Candlestick Charts provide a lot more information and are easier to understand that your basic linear chart. If you have no idea about candlestick charts you can read my post about it.
The reason why I highly recommend reading the chart before buying the stock is because you can find an amazing stock, with amazing financials and you end up buying at the worst time, causing you to go through the unnecessary pain of losing money, and trust me when I say this, there’s no worst feeling than losing money on a great stock.
One last thing about the Trend and Candlestick Charts, never go against the trend! If your stock story and financials are amazing but the stock is on a downtrend for the past year, then most likely it will continue on that trend. Trends are very powerful and hard to break, my recommendation to you is the following:
Avoid the itch to buy a great stock when the price is falling because you think you are getting it at a discount price, this is called “catching a falling knife” and it can get messy, instead, wait for the price to find a bottom, rebound and slowly start to form an uptrend. Only when this happens is when you can buy the stock, yes you might buy the stock 5% or 15% above the lowest point, but what if you bought when it was still falling and now you have the stock and you are losing 30%? Don’t be greedy, be a badass investor!
Step 4 – Monitor your stocks
Buying your first stock can be very exciting, I still remember the rush of adrenaline I felt when I bought my first stock. After a couple weeks of owning that stock I asked myself this question “How do I know when to sell a stock?” Buying a stock is the easy part, you only have to follow the 3 steps I showed to you above, but knowing when to sell a stock is a bit more tricky because the following scenarios can happen:
- Stock goes down: just after you bought the stock, it starts to go down, and down, and even more down… You are currently sitting at -10% or -20%, you get scared/angry/frustrated and sell the stocks to salvage whatever money you can, and then… The stock start going up and end up being a big winner. Just your luck right?
- Stock goes up: it turns out that you did your research and you end up pulling the trigger on the stock. The stock starts going up and you find yourself with a 30% gain on the stock, you think “wow, I’m so cool at this, let me sell the stock and take my profit”. Awesome right? 1 Year after you sold your stock you give it a look to know what happened to it and… the stock is now at +100% from the point you sold it… Again, just your luck right?
So how do you avoid this you may ask? Simply, by buying and holding for the long term, and by long term I mean 1, 5 or even 10 years. You should never invest in a stock that you don’t feel comfortable owning for years, if you are fearful of the stock then you are not investing, you are gambling!
Stocks tend to move in packs, and if the overall stock market is going down, then you can bet that also your stocks are going down. Does this mean that your stocks are bad? Probably not. Lets have the following scenario:
There is political uncertainty in a small country in Europe which triggers a stock market sell off in that continent, this sell off spills on the North American Stock Market and it also starts to go down, you check your portfolio and see that for the past week you are experiencing a -5% performance and start to wonder “what is wrong with this?”.
Now think about this, does that political uncertainty in a tiny country in Europe affect your stock? Probably not, you know go one step forward and double check for any news regarding your stock, you also go and read the financials and realize that nothing has changed, as a matter of fact, your stock story and financials are better since the day you bought it. So why is it going down then? Well, the market is irrational and it can be affected by collective emotions or simply put “herd following”
So what would you do know? If you are a sheep investor you can sell your stock out of fear because you are afraid of what might happen, but if you are a badass investor and understand that nothing has changed with your stock, you would either hold your stock or even better, buy more shares because the market is now irrational and is giving you an excellent opportunity to load on more shares at a great price.
In any case, if you have doubts, I like asking myself “If I didn’t own the stock, would I buy it at this price?” If the answer is yes, I hold or buy more, if the answer is no, then I will probably sell the stock.
If you would like to learn more about how to protect yourself when there’s a stock market crash, you can read my post with 5 things to do in a stock market crash.
Step 5 – “I’ve got this”
The last step is about your mindset and beliefs, I want you to become a confident badass investor who understand the stock market and is able to take decisions by choice and not because you are being forced or bullied by the stock market to take decisions that deep inside you don’t want to take.
We are emotional creatures and we’ve come so far by paying attention to our survival instincts, this helped us to find food, shelter and run from predators. But in the 21st century we are a bit luckier than 5000 years ago, but one thing that got stuck with us is that survival instinct.
I identify that survival instinct when you are depressed, anxious or afraid and you end up making irrational decisions that you can’t explain why you did it. “Why did I buy that stock that I knew it was horrible?”, “I knew I had to hold the stock but I sold it”. This happens not because you are a terrible investor, but because instead of sticking to your strategy you are letting your emotions (survival instinct) to call the shots for you.
I will present you with some principles to overcome the survival instinct and if you would like to dig deeper on this subject you can read my post about 5 money mindset blocks that are preventing you from making money.
Depression is about living in the past, we have to learn from previous experiences to avoid repeating them, but sometimes we get stuck in that moment and believe that “no matter what I do, I can seem to make more money” or you are actually making a lot of money but you are constantly blowing it away.
Anxiety is about living in the future, “Will I have enough money to pay rent?” or “OMG I bought this stock I hope it goes up”, if you have thoughts like this going through your head then you have to identify them and rewire your brain, if not, you will constantly live in fear and will take decisions out of fear, or even worse, you will be stuck doing nothing out of fear.
“Come on Derek, is a lot easier said than done” and yes you are right about it and if you want to overcome it, the first step you have to take is to STICK TO YOUR STRATEGY.
I can’t stress that enough, if you have fear and are about to take a terrible decision that you know you are going to regret in the future, take one step back and review your strategy, research the fundamentals, financials, trend and understand how recent events can or cannot affect your stock, and only then take action.
If you are still afraid and want to quit, I will give you my Pro Tip to overcome making foolish decision, and this is, only review your stocks when the stock market is closed. Got scared and want out? No problem, you can’t because the market is closed ;).
I hope this epic post has helped you in any way, I find joy helping others become a badass investor and also the best version of themselves. I believe in you and you can also become a badass investor! You just have to take one step out of your comfort zone, embrace that feeling and start doing things you have never done, this is the only way that you are going to break the pattern and will be able to achieve your dreams.
If you would like to know more about my strategy and how to invest in the stock market, you can check my course Money Making Bootcamp where I present you my step-by-step strategy to go from lost to pro.
Thank you so much for stopping by and reading this post, if is not too much to ask, can you share this post with your friends and family? There’s nothing more exciting than having a support group striving for the same goals!