This video explains how to build an investment portfolio, and covers 7 tips for stock market investing.

Tip number 1: avoid the risk of ruin! The existentialist philosopher Jean-Paul Sartre said “existence precedes essence”, which in the context of stock market investing means “make sure you don’t go bankrupt, otherwise there will be no portfolio to pick”. Here are some key actions to take care of right now:
Pay down creditcard debt
Pay down part of or all of your mortgage debt
Pay your taxes on time
Beware of the bull trap! In the days of “irrational exuberance”, financial products were sold with advertising campaigns promising “Triple Profit”. Financial advisors failed to explain what was really happening: investing in a limited number of shares with money borrowed at high interest rates. When the stocks subsequently dropped significantly in value, investors were left with triple losses rather than triple profits. What did we learn from the financial crisis: leveraging can be toxic! Don’t borrow money to invest.
Don’t invest in things with cryptic acronyms that you don’t understand, they might blow up in your face! Does anything in this structure sound like Japanese to you?
A key thing to remember: if it sounds too good to be true, it probably is.
Now that we have covered the risk management and the things you shouldn’t be doing, let’s turn to what you could or should be doing in building your investment portfolio!

Tip number 2: Invest in what you care about
When I deliver “finance for non-financial managers” training at my clients, I notice I am more passionate and engaged when the success of their company and my personal financial success are aligned – one third of my stock market investment portfolio is in shares of customers, I hope they will do well, for their sake and mine! And for the record: no, I was not in possession of material non-public information when making these investments!
If you are an employee of a publicly listed company, you could invest some of your money in shares of your company. Be careful not to invest too much, though, you don’t want to get into a situation where you’re suddenly out of a job after a big restructuring because the company isn’t doing well, and your shares are dropping at the same time.
You could also invest in causes or industries you care about….. are you fascinated by clean energy or technology gadgets? This is your chance to morally and financially support them by buying the stocks.

Tip number 3: Be humble & try to learn from your mistakes. Chances of “outsmarting” the market are minimal… investors tend to overestimate their own skills and abilities, and underestimate the influence of randomness….

Tip number 4: Minimize transaction cost. A bit of commission for your broker on each buying and selling transaction does not sound like a big deal, but if you make many trades it does add up to a material amount and transaction cost could start to eat up significant parts of your returns. My strategy on this one is to go for “buy and hold”, making only infrequent trades.

Tip number 5: Don’t expect your stock portfolio to make you happy!

Tip number 6: Understand the strategy of the companies you invest in: what is the unique and sustainable competitive advantage they are trying to build. Furthermore, what is the “optionality” of the companies you invest in – are there any indicators that the stock is ready for take-off? Is the company a potential takeover target, will they suddenly announce a big increase in the dividend they pay, will they split up their conglomerate structure into individual divisions?

Tip number 7: Make sense of a company’s numbers – familiarize yourself with terms like assets, revenue, EBIT, EBITDA, and free cash flow. The Finance Storyteller series can help you understand these! Be aware that a great historical financial performance is no guarantee for future success!

Philip de Vroe (The Finance Storyteller) aims to make strategy, finance and leadership enjoyable and easier to understand. Learn the business vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better #stockmarket #investing decisions. Philip delivers training in various formats: YouTube videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!