Advice For The 16-Year-Old Investor

If you want to get started investing, you need to start reading now. So much of investment is jargon. Articles on investment management are complex at first glance, but after a while get repetitive in the vocabulary, trends, metrics, and watershed legislation they cite. Understand some and you’ll understand most.

After you develop some background by reading articles, it may be best to discuss it with others. Use peers and professionals for guidance on what to read, and note that the more you know, the more they will be willing to exchange advice with you. Join a group on your college campus and take advantage of networking events to gain access to finance professionals. Ask them what kind of investments they make and why.

The first choice you’ll need to make is how much to invest in stocks. What is your risk tolerance – the degree of uncertainty that you can handle in regard to a negative change in the value of your portfolio? Would you be able to roughly maintain your standard of living if your portfolio disappeared tomorrow? You can start small and add a fixed amount each month. Your youth enhances the value of compounding.

Another choice you will need to make is, of course, which stocks to buy. What you are trying to do in choosing stocks is beat the market. In analyzing a company, try to put something together that the market has not yet priced in. This does not mean you need to have access to confidential information, this means that you have to be smart – put ideas together in ways others would not. Additionally, look out for risks: read the footnotes on the Annual Reports, try to discover what the casual reader may have overlooked.

Sometimes it is just luck. Throughout you lifetime you will witness highs and lows, not only in your personal life, but also in your stock account. Be patient. The rule of 72 is on your side. Do not sell immediately when a stock starts falling because a steep slope upward may be just around the corner.

Photo by http://www.flickr.com/photos/chrischanphotography/ / CC BY-SA 2.0

John Prendergast John Prendergast is the co-founder and CEO of Blueleaf. He serves on the board of WiredTiger, a developer cloud optimized databases. He is also the founder and organizer of the Lean Startup Circle Boston. In addition to his decade and a half as an entrepreneur, John spent nearly a decade as an investment banker and financial advisor.