Investing in the Stockmarket: Simple Guide to Beginners

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E*Trade has been one of the top online brokers for stocks & shares since well before the dot com boom of the 1990’s. Now ANZ Share Trading has partnered with E*Trade to bring online dealing to the Antipodean marketplace. Attractive pricing, top quality research and tools make it easy, perhaps too easy, to enter the stock market.

etrade-anz

I was intrigued by some of the tools that E*Trade offers its Australian customers, including a popular education center. Though the basics are well covered in terms of actual trading, it’s likely that unless the new investor is tempted towards ETFs, Sharepacks or Managed Funds, she will need to learn and study some of the basics.

Why? Because prices do go down as well as up. And shorting stocks can be the fastest way to send your account to $0. Especially if you’re using borrowed funds! So I’d like to offer readers my how-to guide on getting started in the stockmarket.

Tip #1: Do your reading

Read about the market in general, get a feel for the general situation right now; find out what sectors are doing well and badly. Look for top tier companies that seem, even in adverse situations, to be doing the ‘right’ thing. Don’t buy anything.

Tip #2: Listen to the Pundits

It’s important to have some idea what people in-the-know are talking about these days, what they’re concerns are, what the buzz words are. But don’t let them influence your choices.

Tip #3: Choose a few companies

Choose a few companies, and start to follow their progress in the newspapers, on TV, and online. Check out their accounts, find out if you can read their public documents. If you can’t, start to study them. Find out what they’re doing, and check for the important numbers: EPS, Book Value, etc. You need to know these.

Tip #4: Start Paper Trading

That’s right. Simply trade on paper (or on Excel). Buy imaginary lots in your head, write it down, and see how it feels. Follow the news, chart the progress, and check the dividends. See how you feel, if you can cope with the ‘ownership’ and risk.

Tip #5: Build your watchlist of companies

That’s that simple. Build a watchlist of companies that you are interested in. But don’t buy or sell. And don’t be afraid of missing out. This fear alone contributes to enough mistakes I’ve made.

Tip #6: Get a grip of your finances

That simple. If you are eager to invest, can you answer these three questions positively? Do you have a 6 month emergency fund? Do you think you can afford to not have access to the month for more than 3 years? Do you think you can bear it if you lose all the money?

Tip #7: Choose your broker carefully

Now it’s time to choose your broker carefully. Read the reviews, check the tools and see if you can try the demo accounts. Perhaps you’ll be lucky and find that you can set up fantasy portfolio!

Remember once you start trading, keep your calm, don’t trade more than you can afford, and try not to churn your trades. If you’ve been a trading investor for a few months, you’ll likely find that you can win and lose money. But remember, never invest all of your cash in one stock… just in case.

Please note: these are personal comments, and as such do not represent investment advice. Do your study carefully, make your own choices. And remember, you can lose far more than you intend to in the stockmarket. It may not be a suitable place to invest for your personal life. Consult a specialist if you’re unsure or don’t understand anything about the stockmarket.

Now if you’ve been investing for a while, what do you wish you had known before you go started? Share with us!

Low Savings Rates: In the West

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I don’t have pretty graphs to illustrate this. But just a niggling suspicion that Western consumers know their dollars, pounds, and zloty are worthless (relatively speaking)?

What incentive do you have to save if banks go bankrupt, governments steal your deposits, and impound your pension funds? What incentive at all? I’m not even talking about inflation & low rates, … but legalized theft of YOUR assets is still theft.

In other words, if you can’t save it, what do you do? Spend it and borrow more? Is that madness when you face confiscation of everything? Not really. It’s the only sensible thing to do, actually. Putting money in the bank for tomorrow only pads the nests of those who would steal it by inflation, sequestration, nationalization, or whatever other taxation method is favored at the time.

Even buying gold isn’t necessarily a safe avenue as Governments have been known to confiscate that, too. Perhaps it’s better to own nothing after all, just a pile of debts? Oh, wait… never heard of a government sequestrating your mortgage. Pity.

Can the CashFlow 101 game teach you about your finances? Perhaps…

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Is anyone here a fan of CashFlow 101 game? Did you ever play the game before? I’ve been a keen player of the game for some time now. I’ve even introduced to some of my students over the years, even the younger ones enjoyed playing the game.

What is CashFlow 101?

Cashflow 101 is an educational board game designed by Robert Kiyosaki (author of Rich Dad, Poor Dad).

The aim of the CashFlow 101 game is to teach the players about investing and making their money work for them. The game provides a setting that is challenging yet informal while helping players some basic lessions in financial literacy. In playing the games, players find it easier to learn and use the basic principles of personal financial management.

Interview with the CashFlow 101 Game Designer

The CashFlow 101 game board is divided into two stages. The first is “the rat race” in which the player is given a basic bank account, spending habits, personal and mortgage debt and a salary. As the game starts, each roll of the dice determines what opportunities you have or what expenses you must make.

There are four sets of cards that determine different the assets and liabilities that you must take on. And each expense or income has to be adjusted. Players go around the rat race trying to accumulate the amount of money that will allow them to enter the fast track.

The promotion criteria is quite simple: that passive income generated in the game must exceed the expenses of the player. Given the different jobs, salaries and financial pictures, this can be quite a challenge!

Personal Comments

Cashflow 101 is actually one great board game. While I won’t go into the rules, as other websites cover this well, I will say that is quite an educational game. I’ve found it quite instructional in a number of ways:

  1. it can model our behavior patterns in a number of ways, esp. our spending patterns, our consumption patterns, our lack of savings as a financially less than capable society, etc
  2. it can model changes in behavior as people try out different strategies, occupations, savings rates, etc.
  3. it can show the longer term consequences of our actions by very quickly showing the results of our dependence on particular aspects of our financial management.
  4. it can show people how to monitor and record aspects of their financial situation, their balance sheet, etc.
  5. it is actually a lot more challenging to play than monopoly.
  6. and, as if you needed another one, it is actually fun to play, we can share our own ideas about money management and financial planning, because, oddly , as our societies consume, it seems there is less and less discussion of the positive aspects of financial management amongst people, and muce more talk about consumption.

You can watch this YouTube video that shows a CashFlow 101 game being played (in Russian, I think) but the game is English and it shows you what the game looks like, and give you a sense of how it is played.

Suggestions, Notes and Improvements

There are some flaws in the CashFlow 101 game that need some working on:

  1. you can ‘learn’ how to win the game, because you know which cards are likely to come up if you play this game more than a few times, there are fewer risks for those who gamble by borrowing money;
  2. stocks are grossly overly simplified, as are houses. You can generally do well investing in stocks, if you know what cards are likely to come up. Again, being more familiar with the cards can help you analyze which cards, so when you hear the offers, you buy them;
  3. there needs to be more challenge to the game for those who played more than a couple of times – so I’d suggest creating a book of separate missions that you can use to play your part in extending the games playability, perhaps increasing the difficulty of individual player’s positions by recreating real-life scenarios;
  4. and, the fast track is spectacularly dull to play, there is little complexity or variety. I think the Rat Race is far more interesting to play.

Financial Education: Commonsense at a price!

Overall, though, it is an expensive game for people to play at nearly $220. If you are interested in playing, perhaps head on over to the Rat Race Players’ (defunct) website for clubs near you. It’s worth a rainy or cool rainy Sunday afternoon!

[For those seeking more of a challenge, you can play CashFlow 202 which is an additional set of cards for the basic game board.]

Have you ever played? What did you think about the CashFlow 101 game? Did you enjoy it? Why?