How to get a stock market education

Stock market education is a lifelong pursuit, and Marcus Padley shares what beginner investors need to know before they spend a cent.

I got asked by a friend the other day, “How do I learn to invest?” Learning to invest is something that might take you decades, because your education never ever stops. There are many things you can trip over at the beginning of your stock market experience, which will just mean you go away and, for the rest of your life, consider the stock market to be a casino or some Machiavellian plot against you. It couldn’t be further from the truth. So, here are a few tips for beginner investors on how to get educated on the stock market.

Right, let me start with this one. I was writing an article about stock market scams. I asked my colleagues at the desk: what is the best way for a new investor to lose $5,000 on the stock market? Let me give you some of them. First one, which was a bit witty, was start with $10,000 and try to make $5,000. That’s a good way to lose $5,000. Trade foreign exchange from the comfort of your own kitchen – good one. They can take money off you a lot faster in the foreign exchange market. Just a little heads up on why the foreign exchange market is so popular with the platforms and providers. Start trading CFDs without knowing what you’re doing. Trade a lot. Trade with confidence. Trade intraday – in other words, be a day trader. Trade on inside information is another good one.

I remember being in the lift when I was working at an Australian broker that had a principal book where the broker trades their own money. A very experienced London broker ran the book. He was in the lift with me and two young brokers who were talking about some inside information, and he piped up in his gravelly – probably 50 years of smoking – gravelly voice: “If I’d never been told any inside information in my life, I’d be a million dollars better off”. That’s sort of true. If you hear an inside tip, you can guarantee when you look at the price, it’s already gone up and you’re the last bunny to buy it.

Buying stocks that have fallen 20% in a day. Buying stocks that have gone up 20% in a day. In other words, dive into volatility. Buying your brother-in-law’s tip. Set and forget. Never take a profit, never take a loss. And another way to lose money is to listen to anybody who quotes Warren Buffett – they clearly don’t know anything about the stock market.

Those are some of the ideas of how to lose $5,000. But clearly, one of the ways to lose $5,000 instantly is to get your credit card out and put it into some financial product that will educate you to trade.

Pitfalls of paying for a share market education

Let’s talk about share market education and some of the pitfalls of paying for it. The first one: looking for a get-educated-quick course. Unfortunately, most people put their credit card in for a sugar hit that particular day – a dopamine rush, I’m going to learn the stock market. But it’s just like going to the gym in January. You’ll go once, you’ll go twice, you might get to four times in a week. The next week it’ll be two. The next week there’ll be one. Anything worth doing – and particularly stock market education – is something that takes time. It doesn’t come quickly. So unless you’re really prepared to push through a course, don’t even bother putting your credit card in, because you won’t make it.

The other thing you’ll need in order to see through an investment education is capital, or discipline. I say discipline because if you don’t have enough money, and money is too precious to you, you will not be able to learn the investing game with money, because you will not want to lose it, and the impact of losing money will be three times the impact of gaining money. If you can finish year one with the same amount of money as you started year one, that’s success in the investment education world.

One obvious way to do that is to do it all on paper for the first year. You educate yourself through experience. Start your spreadsheet, buy your stocks on particular dates at those prices. It is the best way to get an education without losing any money – and particularly if money is very precious to you. You cannot invest with money you can’t afford to lose, and you won’t get an education if you try, because you’ll live in a state of fear.

Avoid the classroom

Avoid the classroom. This might sound silly, but in a classroom you tend to move as slow as the slowest person, and there are always some very slow people at the back. If you are at a particular level and you’re going into a room with all the nuffins who are asking where do I find a share price or what’s the best platform to trade on, you’re going to move extremely slowly. So be very aware of what’s going to be taught and what the environment is, because in my personal experience a classroom is a very slow way to get taught.

Another interesting thing about courses is what material are you going to get? Because you can pay thousands of dollars these days for little more than a set of videos or documents. Bottom line is if you can read it, read it. You really don’t need somebody to read it to you.

Next tip: look how much emphasis is put on technical analysis. Learning to trade is not technical analysis. Technical analysis is charts, it’s indicators, there’s a lot of software – very glamorous, all looks fabulous. But the truth of the matter is, technical analysis is a commodity education base that you can access almost anywhere for nothing. You can learn technical analysis these days online. You don’t need somebody to teach it to you. And in my experience, people who have professed a technical skill set have usually focused on one or two little indicators, maybe even a proprietary indicator they made up. Just because it’s hard to understand doesn’t mean it’s clever, or everybody would be doing it. Just be careful that what you’re paying for is not just technical analysis.

Understand as well that the more you pay, doesn’t mean the more you get. The more you pay is really a reflection of how bullish the vendor is at getting money off you. I am staggered to this day that some products charge as much as they do for what I know you’re going to get. There really is no correlation between quality, delivery, and price.

How to check if a product is legitimate

One of the good signs is to look for testimonials on education courses, particularly video testimonials. They work very well. People are now allowed to praise and abuse on the internet, so always check out the reviews. In my humble experience, when you’re buying anything in the finance world – and this really does separate those with integrity from those without – have they got an address, faces, names, résumés, experience? Do they put themselves out there? Have they got phone numbers? There are many financial products that are unfindable in the real world. Avoid.

And the classic sign that you have to be careful: if you can’t find the cancel my subscription button. I have been caught in products that you simply cannot cancel. It’s like a gym membership. Some financial products – in order to unsubscribe, in order to get your credit card off their database, in order to stop your $49.99 going through every month – you have to email an address in another country that comes back with an auto reply saying this email address is no longer in use or something similar. Has it got a cancel button? If it hasn’t, don’t subscribe.

So there are a few tips and tricks on stock market education. But I think the bottom line is that stock market education is something that just has to start. If you don’t start, it never ends. By the way, if you don’t start, you won’t get good at it. If you come at it with the wrong expectations – trying to make a lot of money in the short term – or you come at it with too much money compared to how much money you’ve got, and you blow your money, you’re inevitably going to have a disappointing experience. But if you stick it out, then welcome. You will become one of the people who absolutely love the stock market with a passion.

It’s not just intellectual, it’s also social. You meet people – retiree investors. A lot of retirees retire and their brain slowly slows down. Well, not retiree investors, because they are waking up every day grabbing their mobile phone, seeing what’s going on in the stock market overnight, waiting for the market to open, seeing how their shares open, looking at the charts, reading all the articles about war, politics, social trends. Brains of investors are awake every day. And the incredible thing about it is that it changes every single day. It is simply the most fantastic hobby you can have – and that’s what’s so fantastic about it – is that you can do it for the whole of your life, but you just have to start.

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