Building wealth through investing: preparation is key to getting started

It’s now possible for anyone to get started in stock market investing, but to be successful, a plan of action is important.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Buy low, sell high, that’s the way to make money investing in the stock market. Sounds easy. But of course, there’s no such thing as easy money. Nevertheless, it is possible to make money in the stock market, millions even, when following a sensible strategy. And that strategy begins with preparation.

Commit to an investing strategy

Billionaire investors like Warren Buffett, Ray Dalio and Jim Rogers each have slightly different routes to riches, but what they have in common is a commitment to their chosen strategy.

Buffett’s preferred strategy is value investing or buying stocks below their intrinsic value. This effectively means buying when the share price is cheaper than the business is feasibly worth.

Sometimes, good-quality companies go through a bad period and their share price tanks. This may be through no fault of their own. The coronavirus, for instance, panicked investors and the share prices of many quality companies immediately fell. Investors who jumped on those stocks spotted value and bought when the prices were undervalued.

External and internal factors to consider

The pandemic is an extreme example, but this kind of thing happens all the time. For instance, if the oil price drops then oil companies across the board see their share prices declining. If the company has staying power and the ability to survive the downturn, then it’s a good buy, because its share price will ultimately recover.

The same goes for every sector. Banking stocks have been out of favour not just because of Covid-19. Prior to that, the 2008 financial crisis caused sentiment in the banking sector to plummet. Then the low-interest-rate environment in recent years led banks to struggle to grow profits. Investors ultimately want to invest in progressively profitable stocks, so banking shares have suffered.

I’m not a fan of traditional banking stocks, but like any sector, there are stalwarts that will go the distance. If savvy stock pickers can pinpoint these and buy them below intrinsic value, they’ll benefit when the world emerges from the pandemic and interest rates rise again.

Every sector has its ups and downs. And every company faces a mixture of external and internal challenges. Savvy investors will look closely at a business’s circumstances and carefully weigh up the pros and cons before investing.

Slow and steady

I think there’s a lot to like about stock market investing and best of all it allows me to take control of my own financial future. My strategy involves holding a diversified mixture of stocks and funds. I take my time to research a stock before buying shares and I opt for companies I understand and like.

By investing regularly, I hope to gradually build a nest egg for the future. The fundamental things I look for when evaluating a stock include:

  • An established business with a track record
  • A management team that keeps shareholder interests aligned with their own.
  • A reasonable price-to-earnings ratio
  • A competitive edge
  • A dividend
  • Room for growth

Being an active investor is not easy, but having a logical strategy in mind goes a long way to simplifying the process. I think lifelong learning is key. The more I read and learn about the sectors or companies I’m interested in, the better prepared I’ll be as an investor.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »