The first time you try something new, it can be a little scary.
But once you gain experience it is not so difficult.
Investing in stocks is no different.
If you are considering starting to invest in stocks, think about this: One of the finance professors at the Business School I attended used to say: "If you spend more than 15 minutes a year investing in stocks, you are wasting your time!" That might come as a surprise for you if you are not experienced.
This is of course somewhat of an overstatement but, if you take a few factors into account, it is not far from the truth.
You see, investing is not like most other areas of skill.
If you don't know much about boxing, it is not advisable to go into the ring against an experienced boxer.
You will almost certainly be beaten up.
If you want to invest, you can actually expect an average return even if you have very little experience in investing.
Think about it this way.
If you invest in all the stocks listed on the stock exchange you will get an average result.
You don't have to spend time doing any research; you just need to buy all the stocks on the stock exchange.
Of course, this is not practically possible, primarily because it will require a large amount of money to buy all of the stocks on the stock exchange.
However, there is one strategy you can use to imitate buying all the stocks.
The strategy you can use is to apply diversification.
If you buy shares in around 15 different companies, you will have a portfolio of stocks that is very close to having the same performance as the market.
Buying more stocks will help you get closer to the average market return, but the difference is very marginal.
This is on the condition that the stocks you buy have different characteristics.
If they don't, their return will be very similar and that will increase the risk of all of them losing, even if the market is going up.
To have a portfolio of stocks that are well diversified, you need to buy stocks in different industries.
If, for example, you buy 15 stocks in 15 different banks, you would not be well diversified.
This is illustrated really well with banks' performance after the credit crisis that began in 2007.
You need to buy, for example, one bank stock, one energy stock, one software company stock, etc.
until you have your 15 different stocks.
You also have to be aware of the size of the companies you buy.
Big companies tend to perform differently than small companies, so buying only stocks in small companies will not help you as much as buying in different types of companies.
You need to buy stocks in small, medium as well as large companies to imitate the market return.
Your holdings should be more or less the same in all stocks to be well diversified but, if the value of some of your stocks at times gets larger than others, it is not critical.
If you have a long-term view, it doesn't matter that much if your portfolio is a little out of balance in the short term.
But once you gain experience it is not so difficult.
Investing in stocks is no different.
If you are considering starting to invest in stocks, think about this: One of the finance professors at the Business School I attended used to say: "If you spend more than 15 minutes a year investing in stocks, you are wasting your time!" That might come as a surprise for you if you are not experienced.
This is of course somewhat of an overstatement but, if you take a few factors into account, it is not far from the truth.
You see, investing is not like most other areas of skill.
If you don't know much about boxing, it is not advisable to go into the ring against an experienced boxer.
You will almost certainly be beaten up.
If you want to invest, you can actually expect an average return even if you have very little experience in investing.
Think about it this way.
If you invest in all the stocks listed on the stock exchange you will get an average result.
You don't have to spend time doing any research; you just need to buy all the stocks on the stock exchange.
Of course, this is not practically possible, primarily because it will require a large amount of money to buy all of the stocks on the stock exchange.
However, there is one strategy you can use to imitate buying all the stocks.
The strategy you can use is to apply diversification.
If you buy shares in around 15 different companies, you will have a portfolio of stocks that is very close to having the same performance as the market.
Buying more stocks will help you get closer to the average market return, but the difference is very marginal.
This is on the condition that the stocks you buy have different characteristics.
If they don't, their return will be very similar and that will increase the risk of all of them losing, even if the market is going up.
To have a portfolio of stocks that are well diversified, you need to buy stocks in different industries.
If, for example, you buy 15 stocks in 15 different banks, you would not be well diversified.
This is illustrated really well with banks' performance after the credit crisis that began in 2007.
You need to buy, for example, one bank stock, one energy stock, one software company stock, etc.
until you have your 15 different stocks.
You also have to be aware of the size of the companies you buy.
Big companies tend to perform differently than small companies, so buying only stocks in small companies will not help you as much as buying in different types of companies.
You need to buy stocks in small, medium as well as large companies to imitate the market return.
Your holdings should be more or less the same in all stocks to be well diversified but, if the value of some of your stocks at times gets larger than others, it is not critical.
If you have a long-term view, it doesn't matter that much if your portfolio is a little out of balance in the short term.