A few weeks ago, I told you a story about a woman who took my advice and used it to overcome her fear of investing.
As it turns out, it was an incredibly popular column.
Reader Robert from Vancouver wrote:
Thanks Shah for trying to provide some financial education.
There is a real and urgent need to teach people at least the basics of investing, the economy, and business.
And I wholeheartedly agree.
That's why I wanted to come back and build on the advice I originally gave you.
You see, once you make a decision to start investing, the next step is to make a commitment to become successful.
And today I'm going to show you how to make that next step...
To Be Successful, You Have to Put on Trades
In a nutshell, the advice I gave in my March 27 column was:
Start by taking positions in companies you know something about. It doesn't matter if you like or hate it. Just that you know enough about the company's products, services, whatever they do, so the stock's ups and downs make sense to you.
Once you pick a stock, you always start the same way. You put on the trade.
Never think that your trade, or your position, is an investment. It isn't. It is a trade.
You can get out of it at any time.
If it turns into a brilliant pick, your trade will turn into an "investment" because it's worth holding onto.
But to become a successful investor you have to start by putting on trades.
You can't make money watching from the sidelines. But you also can't be a deer in the headlights either. You can't go into a trade and think it's an investment and you're stuck with it when it goes against you. It's a trade!
And the reality is that some of your trades will be losers...
That means you will get out of positions with small losses. It's part of the game. You will have some losses but they will be monumentally overwhelmed by the trades that will make great money. And the ones that keep going up and maybe pay you dividends will become the "core" of your investment portfolio.
And that's your ultimate goal. You want to create an investment plan that leads to financial freedom.
Psychology and Perception Are More Important Than Data and Facts
One of the reasons I say that you don't need to be an expert on any company, or on any stock, is that no matter how much homework you do, no matter how much analysis you do, what makes perfect sense on paper may have nothing to do with how your stock trades.
When you watch your stock going up and down, you begin to understand the "psychology" of other investors - what they're looking at, how they interpret news and data.
You're one person with one position. There are millions of people like you watching that same stock. Collectively, their perception of news and data and the psychology of their fear and greed ultimately motivate them to take action, which moves the stock.
I can't tell you how many times I've done copious amounts of research and been absolutely confident that I was putting on a winning trade, only to have my head handed to me because other traders' perception of something that came along (it could be out of nowhere) was interpreted as a reason to sell the stock.
About the Author
Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.