How to invest in stocks; A reverse approach. 

Internet is flooded with articles with titles like 

•  How to invest in stocks, simple. 

•  How to avoid losing money in stocks 

• How to become a billionaire in next 30 years 

STOP. Stop right there. 

All these articles can give you conventional and accurate knowledge about the procedure and process of investing in stocks.  

But if you read this phrase “how to invest in stocks” deeply, you would begin to understand it. 

It is not about the procedure, rather it’s about the approach.  

The right approach is the key. 

How to invest in stocks; step by step method: 

The conventional process to get on to the rollercoaster of the stock market is as simple as ordering a book from Amazon. 

Step No. 1: 

The first and foremost step to the answer to question “how to invest in stocks” is to wisely distribute your money. 

Distribute your money into two parts. 

One for savings and investment. 

And another one for managing your daily life expenses. 

There is a cliche and I hate cliches, but they say: “Don’t put all your eggs in one basket”.  

Don’t jump into the stock market with everything you have even if you are playing safely. 

Then create an investment account in your bank and put the money from your saving account into it to buy stocks. Now we go ahead to learn how to invest in stocks using a reverse approach. 

Reverse Approach:  

Most financial advisors would tell you that you can start from $1 only and how much you should invest. 

Bullshit. 

Before investing a single penny in buying stocks, test your water. Your emotional capacity to let your money go is more important than your financial capability. 

1 Month challenge for how to invest in stocks: 

Give yourself a 30-day challenge. Put the amount you want to invest in buying stocks into your savings account and forget about it for 30 days. 

Pretend that you don’t have that money. Do your other expenses as usual.  

After 30 days, if you feel that your rent or groceries are compromising because you are holding that money, you feel anxious or scared then you are not ready to step into stock markets.  

Make your basket stronger and then start putting eggs in it. 

Check your basket even before putting a single egg in it. 

Step No. 2: 

Create a Brokerage account. 

Don’t get confused. It is just like a bank account but for investments.  

According to an article published by Briefs.co: 

“A brokerage account is where you actually buy and sell stocks”. 

Reverse Approach: 

Most financial advisors guide you to go for three things while looking for a brokerage account. 

• It should be reliable. 

• It should be convenient. 

• It should be well reputed. 

Here, I don’t disagree with them, even though I can suggest to you some famous names that offer brokerage services like Schwab, Vanguard, and Fidelity. 

But the thing is, you should consider your brokerage account as your playground.  

You fall, you rise, fall again, rise again and finally you master the skill of playing football.   

Types of Investments: 

Brokerages offer you two kinds of investment: 

Passive Investment

It is a relatively safe and stable kind of investment.  

In this investment, you get a list of multiple companies and their performance, and you invest in the same proportion of the same investment in all the companies according to the trends of the index. 

The most common examples of passive investment are Exchange Traded Funds and Index Mutual Funds. They follow the policy of buying and holding as markets rise in long tendencies. 

Active investment

It is an investment strategy in which an investor picks the companies one by one to buy their stocks.  This kind of investment needs thorough research about market trends and timings, and expertise to outshine the index. 

In short, if you are lazy and patient, your go-to strategy should be passive, but if you are ready to put some real work into this process, then active investment is suitable. 

The same thing when you start investing you will make mistakes, but no one can teach better than your own mistakes. 

For the very same purpose, many brokerages offer paper accounts where no real money is involved, and you can learn strategies as well as your triggers. 

At least for the first 60 days, you better not buy anything. Just learn! 

Reverse Approach: 

Before learning to invest in stocks, remember that stocks are about 80% of psychology, 10% luck, and 10% of math.  

Most financial advisors just focus on math and luck. They ignore the important factor of psychology. 

Both approaches can be a trap if you would not be familiar with your own psychology. 

You cannot hold back your money when market rises by 30%, and you cannot be patient when everyone is panicking and selling their shares in a passive investment approach. 

Likewise, no matter how much research you have done, the risk factor remains very high in an active investment approach. 

So, we can go the middle way.  

Invest 80% of your shares in passive investment approach and invest 10% in active investment. 

Passive investment would keep you on a safe and stable side while an active approach would help you build your expertise and make you more familiar with the game. 

The Exit Rule to invest in stocks: 

All these conventional guides make this look like a cake walk when in reality it’s not. 

 That is why most people start in very high hopes and left in panic after a few months with excessive financial and emotional damage. 

The Reverse Approach: 

Make your exit rules even before entering it. 

Without any solid exit plan, your investment will be of no use. 

Make an IF-THEN framework. 

Make it obligatory for you to not sell any shares in panic you will only sell if certain events happen like CEO of a company you invested in resigned unexpectedly or other way is if prices go higher. 

Conventional vs Reverse Approach: 

Conventional approaches will give you checklist of:

•  How to open a brokerage account. 

•  Look for stocks 

•  Buy 

• Look after market trends 

• Sell 

• Reinvest. 

The point here I am trying to make is that the reverse approach does not deny conventional approach. It just gives you a new perspective to look at things. 

• Conventional approach focuses on financial grounds and reverse approach works on emotional grounds. 

• Conventional approach focuses on diversification meanwhile reverse approach makes you mentally prepared to track all those stocks at a time. 

• Conventional approach wants you to buy and hold; reverse approach trains you to stay still and calm. 

• Conventional approach wants you to avoid mistakes, but conventional approach teaches you to make mistakes and learn from them. 

The key is to follow a conventional approach and implement a reverse approach to ace the stock market. 

To learn more about what stocks are and how to invest in stocks, check out our previous article.