Can Everyday Investors Succeed in the Stock Market?

Guest post by John from FrugalRules.com

Everyday Investors

I remember the call like it was yesterday. I was listening to a woman bemoan her recent $15,000 loss in a certain penny stock only to follow it up by saying she wanted to invest another $10,000 in the very same stock. I was limited as to what I could say, as it really was up to her, but I did ask why she wanted to put more money in the same stock.

Her answer revealed her attitude about the stock market. She expressed a belief that there was no chance for a retail investor like her to have any success investing in the stock market and she would just have more fun throwing her hard earned money at long shot penny stocks. Her retirement portfolio was full of wild guesses; in fact, the only thing it was missing was something solid.

This woman’s call made me wonder how many other average investors felt the same way she did – that investing is too complex and the entry bar is set too high for average investors to see success.

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Investing Doesn’t Have to be Difficult

It took only a brief second to see that this investor was off on her view of investing in the stock market. She went on to say that investing was simply too difficult and there was not much a “small-time” investor like herself could do. Therein lies the problem – the belief that investing is difficult.

Truth be told, there are numerous things in the investing realm that can be difficult, depending on your level of investment knowledge. However, I believe investing in the stock market – on a very basic level – does not have to be difficult at all. Most of the the time, this feeling of difficulty can be mitigated through simplifying your strategy and focusing on investing in index funds or solid dividend-paying stocks.

I’ve had countless other conversations just like the one I mentioned above and they all ended the same way – with aimless investors thinking they were investing their money when what they were really doing was much closer to gambling. For one reason or another, they failed to take their investing seriously and it resulted in them feeling like it was too difficult for them to manage. That said, how can investing be made simpler so that virtually anyone can do it with some level of success? I have one word for you – education.

Walk Before You Run

I am like most people in that I learn best by doing. I love to get my hands dirty with a problem and solve it with a hands on approach. Investing in the stock market is no different, save for the money we have on the line.

The common issue I saw with many retail investors was an unwillingness to use resources available to teach them how to invest in the stock market. The great thing about the internet is that there are so many educational resources available on investing, and much of it for free. Take the material available on Wall Street Survivor for example. There are various course available on investing basics which  are written in a way that anyone can understand. Beyond that, there are a number of online brokerages which offer courses and paper trading accounts.

There is little better in relation to investing than to test out your strategies before actually putting some skin into the game, and paper trading accounts allow you to do that. The purpose behind many of these investing tools is to get you to the point where you’re somewhat comfortable with investing. I have three young children and I’ve been blessed to watch each of them crawl before they take their first, wobbly steps, then master walking before they run around the house like chickens with their heads cut off. Learning to invest is a lot like learning to walk; it takes time to reach a comfort level with investing – which is what educating yourself can accomplish. The beauty is that a little education goes a long way in helping you become more comfortable with investing.

Success Is Possible

Even in the age of dealing with things like High Frequency Trading and tumultuous markets, I believe that it is still possible to be successful with your investing. Once you start educating yourself and learning by doing, the next step is to determine what your goals are. What are you investing for? Are you trying to get started saving for retirement, or are you investing for your children’s college fund? The answers to those questions can help you guide your approach and establish an investment plan that can guide those investments.If education and practice is something overlooked by many retail investors, then knowing what they’re investing for is a close second. The two together can be either a poor combination, or a great one.

Does it take work to become a successful investor? Yes. Is it possible for many to reach a certain level of success? Most definitely. The key is knowing what you’re aiming for, working towards that end and motivating yourself to reach that success. I know some may say that it’s easier said than done, and they’d be right to a certain extent. But that does not mean it’s impossible – it just requires work and time.

What do you think is important to having success in the stock market? How did you get started?

John is the founder of Frugal Rules, a finance blog that regularly discusses investing, budgeting, and frugal living. John is a father, husband, and veteran of the financial services industry who’s passionate about helping people find freedom through frugality. Visit him at frugalrules.com or follow him on Twitter.

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One response to “Can Everyday Investors Succeed in the Stock Market?”

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