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Get started in stocks

To the outsider, the stock market can seem like a dangerous place to invest. This is probably why so many people in NZ opt for residential property. The stock market really isn't that complicated though; it is simply a place whereby the public can buy shares in different companies. The reason that these companies list on the stock market is to gain access to those public individuals funds. This new money can fund their business activities and can fund future growth.

The 1987 stock market crash, and other past market crashes have scared a lot of people out of stocks in NZ particularly. In February/March last year we saw a 30% decline aka. the Covid Crash. This is perhaps the most dangerous thing about stocks, that the prices are quoted constantly on the stock exchange. With the homes' we live in or invest in, the prices are not often quoted. We all know that the Rate-able Valuation is rarely the price we will receive for a property. Having prices quoted all-the-time can make people prone to making ill timed decisions and/or trying to time the market. The best thing to remember when you buy a stock is that you are buying part of a business, but the price quoted will rarely be the price the business assets could sell for. This is called a businesses Tangible Valuation or Salvage Valuation i.e. what a business could get by selling off its parts. A better way to think of the true value of a listed business is to calculate its Intrinsic Value. This is the method that Warren Buffett has used with success for the last 50 years. The true value of a business will be found combining its Tangible Value with the value of its future cashflows. A real estate business (a REIT) will have a true valuation closer to its Tangible Value, while a tech business such as Amazon will have a true value associated more closely with its expected future cash flows, because a high-growth business will greater future cash-flows than a low-growth business will.

It is true that investing profitably in the stock market is difficult. But thankfully there is a lot of information out there to teach you how to invest well. I have always liked Buffett, but others such as Jim Cramer and Jack Bogle are also useful sources of information. It is also thankful for all perspective and current investors that there a number of great investing and trading platforms out there. We've always been told that the best way to learn is by doing; and this is the same with trading and investing. A couple of platforms that I have useful are CMC Markets and Hatch.

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