In primary school, I remember my teacher coming out with the 5 W’s and H — Who, What, Where, When, Why, and How.
It was visible on a poster on the wall. It was repeated constantly. This method was used for basic information-hunting and problem-solving, which we all learned at a very young age.
This got me thinking: ‘Could this method be used to teach beginners how to pick a great stock?’
It is YOU!
You would not be reading this article if you were not a little bit interested in trading shares.
So why not start trading alongside a family member? Or a friend who also has an interest in trading?
This can motivate you to keep going.
Here’s a good real-life example. You’re sitting on the couch at 7pm. You know that you have made plans to go out at 8pm. But you just want to keep watching your favourite TV show. That’s when your phone lights up, and you get that message from your friend. She’s saying they are on their way. You feel dreadfully lazy, but you get up and head out anyway.
Once you are at the restaurant, you forget about your TV show. You enjoy yourself. You are happy that you decided to go out, after all.
It’s the same with stock-trading, isn’t it? What happens when a friend sends you a message? What if they tell you they have discovered an exciting stock? Well, that encourages you to keep researching and exploring. You make a firm decision to buy, sell, or hold.
It is also a great way to keep in contact with your family and friends. You have a common interest. You have now become even closer. Socialising at its best!
However, for simplicity, I would urge you to keep your trading accounts separate. We don’t want to start a feud when it can be avoided. Like the saying goes, ‘Don’t go into business with family and friends.’
What stock should you be investing in?
There were over US$60 trillion worth of stocks traded in 2019.
Different industries. Different countries. So where do you begin?
Source: World Bank
I would like to go back to basics. I would encourage you to choose an industry that excites you. Or an industry that you are familiar with.
The ultimate goal is to diversify your portfolio, but in my eyes, you have to start somewhere.
The diversification can come after you have had a few goes in trading. Try something you feel comfortable with, and I assure you, the rest will come.
For example, let us say that you are a doctor. You want to trade in your spare time. Choosing a pharmaceutical stock may align with what you already know. You will be able to understand this industry more than most people.
However, this does not mean if you shouldn’t trade pharmaceutical stocks if you’re not a doctor. But the passion and willingness to learn will always go a long way.
Perhaps you’re a tradesperson? Well, in that case, your go-to stock might be in the mining industry. Big trucks. Machines that drill. Machines that excavate. These things excite you.
Are you living in the rural country in New Zealand? Do you have had lots of family and friends in the farming industry? Then dairy stocks might be your area of interest.
There are so many more examples out there. You can apply your life to an industry that you feel comfortable in. That way, you won’t be overwhelmed by any industrial jargon. You might even embrace the jargon!
WHERE is actually linked to WHAT.
Let me explain.
As I’ve said before, there are stocks trading all around the world. But here’s the thing: different places tend to specialise in different industries.
For example, let’s take the pharmaceutical industry. You might be much better off looking at the European market. Why? Well, because they have cutting-edge drug research and development.
And what about mining? Well, Australia is the Lucky Country. They have iron ore, nickel, aluminium, copper, gold, and so much more.
What about dairy? New Zealand could be a credible pick. It’s the biggest milk exporter in the world, by dollar value.
Ultimately, here’s the important thing — when you choose the right market, your level of risk is reduced. The stronger the industry in your chosen market, the less risk of the company failing.
When is the right time to buy, sell, or hold?
You can reduce the guesswork by researching the right stocks on your own. But what if you don’t have the time? What if you don’t have the patience? And what if you need more direction and guidance?
This is where Lifetime Wealth Investor can come in handy. It’s a research service where we take all the guesswork out of stock-picking.
We send you market updates and stock recommendations on a weekly basis. Giving you the opportunity to understand to discover global industries that might deliver value, growth, and income.
There’s never been a better time to get started with investment research.
Asking yourself WHY — this can impact how aggressive or defensive your trades should be.
- Are you on your way to retirement?
- How far away is your goal?
- If your goal is 10 years away, you have more time to be aggressive in your stock picks. You can take on more risks.
- But if your goal has to be achieved in the next five years, you can mix it with different risk categories. Both low and high.
- Are you investing for passive income? How about obtaining some blue-chip stocks. They normally have slow-to-moderate growth. However, they historically pay you dividends at least twice a year.
WHY is a very personal approach. You should spend some time reflecting on your goals. What do you want to achieve? This will dictate your short-term and long-term strategy.
This is the most critical part. It is easy to lose your focus in investing. It can seem overwhelming at first
There are so many types of investment services that you can access — all over the web.
The first step is figuring out what type of investor you are.
Once more, a simple tool like Lifetime Wealth Investor will give you a step-by-step instructions on how to build a global and diversified portfolio.
Bear in mind: global stocks have different kinds of risks. This might include…
- Foreign exchange risk
- Credit risk
- Intellectual property risk
- Ethical risk
That is why having that helping hand is so important. You will be able to understand and reduce some of these risks.
Final thoughts on stock-picking
Now you can apply Who, What, Where, When, Why, and How.
That makes the stock-picking process simple and easy to remember.
If you follow this thought process, you will be a smarter investor in the end.
Good luck! Go have some fun!
Contributor, Wealth Morning
(This article is general in nature and should not be construed as any financial or investment advice. To obtain advice for your specific situation, please consult an Authorised Financial Adviser.)