What nobody says about the stock market

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No matter how many books you read, podcasts you listen to, or websites you visit to learn the intricacies of the stock market, investing is a risky business. Getting a consistent return at a reasonable level of risk is not easy. So can you really learn enough to be successful in investing in stocks?

Barriers to learning about stocks

At almost any given time, there will be experts predicting that the market will go up or down. Furthermore, the same sources of information can be used to draw these contradictory conclusions. Predictions are based on market behavior and human psychology, and no one can accurately predict what investors will do and how stocks will react. So while no amount of knowledge can solve this problem, what individuals can do is study past events.

Stock Market Theory

There are reliable and consistent principles of asset allocation, arbitrage, short selling, and many other concepts and methods. However, a persistent problem with the financial market is that there are too many unstable variables. With each situation, different factors play a role, and what worked or failed before may now do the opposite.

Skill or Luck?

Learning stock market theory is certainly a good place to start for novice investors; however, it is also essential to recognize patterns of activity and behavior. Even with these skills, professional traders fail to make the right predictions or find themselves in the wrong market at the wrong time. Therefore, success with investing is a combination of knowledge, experience and luck.

Portfolio Diversification

An overarching rule of thumb for the new investor is to diversify an investment portfolio. The portfolio must be rebalanced regularly and must not be subject to excessive fees imposed by a portfolio manager.

Start with little to learn

You don’t have to go thirsty for the pot right at the start. Take it easy, learn and only then start investing a significant amount. Be wise and don’t risk so much until you acquire enough skill and knowledge to do so.