A share is like a pizza
The Pizza Theory of Investing
I’m half-Italian and I love pizza. I think about pizza. A lot. Even when I'm thinking about investing.
A company is like a pizza. When it is listed on a stock exchange it is sliced up and shared like a pizza at a party. You end up with your “share” of the pizza. When you want to buy a share in a company you don’t go to a pizzeria, unless you have a phone with a brokerage app, but that can get messy.
Shares in a company are bought and sold many times a day. You can buy or sell them anytime the market is open. This is known as liquidity.
This is unlike residential property which doesn't have a sign on the roof telling you how much it is worth every moment of the day. You can't sell a few bricks here and there either. It's all or nothing.
My investing story
When I bought my first shares I actually walked into a stockbroker's office. He talked about a particular company, Jervois Mining. I sold within a few months for a reasonable short-term profit.
During the 90s I bought shares during the privatisation revolution. It was when companies like Telstra, Commonwealth Bank, NRMA & Qantas were first listed on the Australian share market.
In 2008 I had a little more money than usual, just when the Global Financial Crisis hit. The sensible thing to do would have been to slowly buy into large solid companies during the market lows. Even an index ETF, but I didn't know what they were then.
I wasn't sensible. I found myself a stockbroker who was happy to encourage my trading. I made good money during 2009 when markets were recovering. I had a margin loan and I dabbled in options to further amplify the gains. But there's an old saying: things work until they don't. I ended up losing money big-time. It was because I was over-confident and I didn't learn from my mistakes.
Three investing mistakes that I made that you shouldn't
How to buy shares
Trading directly in the share market is not for everyone. It takes time, patience and a lot of study. You can invest in shares via ETFs and micro-investing apps without having to commit your time and energy. But some people want to learn
While it might seem like a complicated process, it's actually quite simple – even beginners can do it with some research and guidance. You'll need to open a brokerage account that allows you to buy shares on the ASX. This will give you access to real-time pricing data, making it easier for you to decide when to buy shares by watching the stock's price movement. Next, you'll need to conduct research in order to identify companies that are likely to provide long-term returns. Lastly, when it comes time to purchase shares, be sure to set limits so that your investment goals remain achievable.
Who wants to eat the same kind of pizza all the time. You want your Margarita, your Vegetarian, Meat-Lovers - although I draw the line at Pineapple. This is what's called diversification. It will help you to avoid losing money in the share market. This means investing in a variety of companies across different industries and sectors.
Match your risk to your experience
This is a great quote from one of my favourite guests, Claude Walker from A Rich Life. He says that when you have an amount of money to invest don't commit it all at once. Start small. Add to it over a long period of time so that you can learn, experience the emotions and not risk everything at once.