10 INVESTMENT PRINCIPLES FOR AN ENTREPRENEUR/INDEPENDENT 

133,000,000 is the number of results when I type “stock market training” into Google. As you can see, there is so much content and also so many platforms (such as the eToro investment platform ) that we don’t know where to start.

Luckily, you’ve come to the right place.

However, keep in mind that it is a challenge. And I made this challenge my passion. I could talk about it for pages and pages.

Moreover, you can join LiveMentor’s personal finance training by registering for the waiting list. Training that teaches you everything you need to know to optimize your personal finances. Note that this training was created in collaboration with Yoan Lopez , founder of the famous newsletter: Snowball.xyz.

In this article, I share ten practical tips for getting started in the stock market. You can tell me what you think in the comments section.

1) TIME IS MONEY

For our children, my wife and I invest every month.

When did we start? The day they were born. 

For what ? Thanks to the eighth wonder of the world ( according to Albert Einstein): compound interest .

What are these compound interests?

Let’s imagine the following situation: after reading this article, you might want to invest 10,000 euros. This investment earns you 6% per year. 

You might think that your final return is 60% (6% times ten years), but that’s wrong, as shown in Table 1 below. At the end of the first year, you’ll have $10,600. 

These 10,600 euros will work during the second year and bring you an additional 636 euros. In reality, the interest in the first year (600 euros) itself generated interest in the second year (36 euros), which is added to the interest on the initial 10,000 euros.

After ten years, this investment will therefore yield more than 79%. It’s a bit like passive income in a way.

And in the long term, what does that mean?

After 60 years, what happened to the 10,000 euros? 329,877 euros 

Look at the illustration below. The more time advances, the more growth becomes exponential. 

This is the magic of compound interest .

Your interests will themselves generate interests which will themselves generate interests, etc.

This is one of the good ways to invest and manage your money . And the snowball effect is underway.

My advice : start as early as possible  ?

Figure 1. Evolution of an investment of 10,000 euros at an annualized return of 6% for 60 years.

2) FOCUS ON ACTIONS

Stocks deliver the greatest returns in the long term.

On average, stocks earn between 6% and 8% per year over a very long term period. They are better than bonds, cash, gold or even real estate.

If you have an investment horizon of at least 10 years and are willing to accept stock market volatility , then you can invest the majority (or even all) of your financial assets in stocks.

On the contrary, if you have an investment horizon of at least 10 years but are not ready to accept volatility, you can invest in three asset classes:

  1. In actions, to fight inflation in the long term
  2. In good quality bonds (solid companies and states), as a safety cushion
  3. In gold, also as a safety cushion

My advice  : Invest in stocks. But if your investment horizon is less than 10 years, do not invest in the stock market.

3) START WITH ETFS

An ETF is a passive investment fund that tracks the performance of a stock market index. 

But what is a stock index?

stock index is a basket composed of several stocks (for example) which reflects the performance of a particular market, such as the S&P 500 (main stock index in the United States, composed of the 500 largest companies listed on the stock exchange in the United States). Unis) or the CAC 40 (main index of the Paris stock exchange, representing the 40 largest companies on the Paris market).

So an ETF allows you to expose yourself to the stock market performance of a certain market.

I share with you 8 important steps that I take before investing in an ETF:

  1. Choosing the investment universe . You don’t know which universe to choose? Start with the MSCI World, it is an index representing 1600 listed companies present in 23 developed countries;
  2. Take an ETF with physical replication to avoid counterparty risk;
  3. Ensure that the ETF is capitalizing , that is to say that it does not distribute dividends (to avoid any tax friction);
  4. Check that the ETF I want to buy is not hedged against currency movements (it must be currency unhedged );
  5. Invest in ETFs that have been in existence for at least three years . Ideally, five years;
  6. Choose ETFs that have a size of at least one billion euros  ;
  7. Verify that past performance is similar to that of the benchmark stock index  ;
  • These first 7 steps can be carried out using justETF for example. 
  1. Finally, check that the ETF I wish to invest in is available on my investment platform.

My advice  : don’t invest in direct line stocks. 

For what ?

Because over 90% of professional investors fail to beat the stock market in the long term. 

If you still want to do it, it requires weeks or even months of work to analyze a company in detail. You understand: being a financial analyst cannot be improvised .

4) AT EACH DROP, REINVEST AVAILABLE CASH

Volatility is inherent in financial markets, it is part of the game .

Either you understand it and you accept it, then you can invest the majority (or even all) of your assets in stocks. On the contrary, if you do not accept it then investments in the stock market are not suitable for you.

Every year , there are periods that are more volatile than others. 

Let’s look at the illustration below. 

The red dot represents a drop in the S&P 500 index in a single year, between the high and the subsequent low. The gray bars represent the annual performance of the S&P 500 as of December 31 of each year.

In 2020 , for example, the S&P 500 index saw its value decrease by 34%, but it ended the year in the green with a performance of 16%. 

In 2018 , after experiencing -20% in a few weeks, the index ended the year with a performance of -6%. 

In summary, every year there are more or less significant stock market falls, but the stock market rises on average 70% of the time.

After every fall, stock indices always rebound . Stock index rebounds have three major characteristics  :

  1. They are larger (in %) than the falls;
  2. They take longer to return to the level before the fall. It’s completely normal, it’s mathematical. Indeed, a fall of 50% must be compensated by a gain of 100% to return to the situation before the fall;
  3. Stock index rebounds last longer than stock market crashes.

My advice: if you have not yet invested in the stock market or if you have cash left, then take advantage of the sales.

If the market continues to fall, you will buy cheaper and your average purchase price will decrease. 

If the market rebounds, your portfolio will rebound with it and you will benefit from the rise. 

5) DEFINE THE AMOUNT TO INVEST IN THE STOCK MARKET

Take the sum of your current accounts, savings accounts, passbook savings accounts, etc. 

I always recommend keeping an initial safety cushion of 6 to 12 months of net salary, to cover unexpected expenses, such as replacing a washing machine, heat pump or even car. 

If you have a concrete real estate investment project that is coming up in the next five years, I advise you to keep a second safety cushion .

Then, by doing the same as your cash accounts and deducting the two safety cushions, you will obtain the amount to invest in the stock market. 

Let’s take two examples  :

  • If you have 60,000 euros, a safety cushion of 20,000 euros and no real estate projects in sight, then you can invest 40,000 euros . 
  • You have 60,000 euros, a safety cushion of 20,000 euros and you have a real estate project that requires 30,000 euros of equity. So the amount you can invest is 10,000 euros .

As I explain in my training “4 weeks to get started on the stock market” , invest either all at once or over a period of a few months (six months for example).

My advice  : take stock of your finances and invest the surplus

6) INVEST EVERY MONTH

Every month , I invest a significant portion of my salary.

Do the same.

There are almost no barriers to entry to start investing in the stock market.

Please note that there are certain platforms that allow you to invest a few dozen euros per month.

Why invest every month  ? 

In my opinion, I identify three main reasons:

  1. Compound interest , again. Imagine you invest $25 per month for twelve months at a 6% annual rate of return. At the end of the twelve months, you won’t have $300 but $308.16;
  2. Investing every month also helps avoid decision-making influenced by emotions . Indeed, too often, I hear from people who postpone their investments because “volatility has increased in the markets, we will wait for it to calm down” or because “this is only the beginning of the stock market crash, we will wait for it to continue to fall”; 
  3. If the stock market falls, by investing every month, you will reduce your average purchase price, that is to say, you will buy cheaper before a future rebound. If the stock market rises, you will not wait several months before taking advantage of it.

My advice  : invest a small amount every month rather than waiting twelve months to have a larger amount.

7) DON’T TRY TO PREDICT THE STOCK MARKET

Can we predict the future?

Very difficult, even impossible, isn’t it?

Predicting the stock market? I think it’s impossible 

If you think you have a crystal ball and can buy low and sell high, consistently without making a mistake, you can try.

But I don’t recommend it.

I’m going to share a story with you .

In August 2021, Paul contacted me because he wanted to invest in the stock market, but his intuition made him exit the markets in January 2020. Maybe good timing. Or not. Indeed, eighteen months later, he still hasn’t reinvested, while the stock market has gained around 30%. His shortfall? 30,000 euros. 

Then, having been in contact with many professional managers, I realized that many of them try to do market timing .

But they are also wrong , just like private investors.

Finally, remember that most of the best days in the stock market come during the most volatile periods.

My advice  : the one and only way to not miss the best days on the stock market is to stay invested as long as possible.

8) CONTROL YOUR EMOTIONS

We experience many emotions on a daily basis, which explains why our decisions are not always rational. 

Besides, our decisions are emotional and the big marketing agencies have understood this well. 

When you order a new pair of shoes online, is it rational or emotional? When you buy the new iPhone, is it rational or emotional? 

As you can see, our emotions guide our decisions.

On the stock market, it’s the same thing.

But the effect can be destructive.

So, it is important to separate emotions from decision making 

Indeed, emotions are extremely destructive of value. They represent between 60% and 70% of the cause of underperformance of professional investors and private investors compared to the reference market.

Here is a list of 5 questions to ask yourself to avoid behavioral biases in decision-making:

  • Am I not trying to predict the behavior of the stock market? ;
  • Of my last winning investments, how many were due to luck? ;
  • Am I flipping a coin by investing in this stock? ;
  • Is my portfolio well diversified across geographies, sectors, currencies and even asset classes?
  • Am I following a trend by investing in this stock or ETF?

My advice  : Invest like a robot, systematically. For example, the first business days of each month.

9) DON’T LISTEN TO NEWSPAPERS/INFLUENCERS

Every week, a newspaper predicts the future stock market crash.

Or major internationally renowned economists or managers make shocking announcements stating that financial markets can lose 30%, 40% or even 50%. 

For my part, I remain humble: I cannot predict the future and I do not have a crystal ball.

It is impossible for me to predict a future stock market crash . In my eyes, no one can, so I advise you to:

  • Detach yourself from the numerous press articles which are no stranger to the ambient panic;
  • Don’t listen to the big names in Finance;
  • Be humble about the stock market. It is unpredictable, period;
  • Keep a long-term perspective .

There are also more and more influencers on social media making predictions about financial markets, how to invest in cryptocurrencies and other types of investments.

My advice: Make up your own mind and educate yourself. Continue to develop your critical thinking skills.

10) USE TOOLS LIKE MORNINGSTAR OR JUSTETF

Do you want to know more about the active or passive investment fund you hold? 

Take the fund’s ISIN code ( International Securities Identification Numbers ), a number that identifies it, and copy it into the Morningstar or justETF search bar .

By doing this, you will be able to find a lot of information about the investment fund:

  • Graphics;
  • Performance; 
  • Costs ; 
  • Composition of the fund;

For an active fund (i.e. an investment fund whose objective is to beat its reference market), before investing in it, it is useful to do two things:

  1. Compare its behavior with that of a benchmark stock index, such as the S&P 500, the CAC 40 or even the MSCI World for example ? this makes it possible to establish whether an active fund has real added value, in the long term, compared to an ETF;
  2. Compare its behavior with that of funds in the same category ? This allows you to see if an active fund stands out compared to its peers in the same category.

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