With all the young ambitious business people and entrepreneurs coming out of Les Roches Marbella each year, one of the most common questions I get from students is how to invest in the stock market and how to do it successfully. After all, being at the forefront of the hospitality industry often times puts them into a privileged position where beneficial insider information about hotel mergers, buyouts, and new ventures can serve to make them successful investors as well as hospitality professionals.
The first part of their “how-to” question is pretty straight forward, the second part, a little less so. From my experiences, both positive and negative, I have three simple rules I believe are the key to making successful investments in the hospitality industry and elsewhere.
1. Turn off your brain
I know this sounds ridiculous, but genuinely. As a 12 year old (yes, I was twelve years old; it would appear a career in finance was always in the cards for me), I determined I was going to rule the stock market, so I got copies of the Financial Times and set about finding trends in stocks, without success. This is what experts are paid huge sums of money to do, and even they often get it wrong. In fact, a study by the wall street journal in 1998 proved that random (Monkey) stock picks outperform analyst picks in 49% of cases, so there is no magical winning theory. This is the reason I am not writing this article from my yacht in the Cayman Islands, I have to learn to do this! So think simple and don’t over-analyze: if Cyprus is crashing, Cypriot stocks will fall. If a newspaper says a deal is about to be reached, the stocks will rise. When the meeting goes bad, the stocks fall again. Simple, right?
2. Be informed
The first point, of course, only makes sense when you know what is happening. But don’t worry, you are not expected to paper the walls of your room in financial times cut outs and prospectuses, let other people do that work for you. Instead, check websites like CNN, CNBC, The Economist, The Financial Times, etc. There are thousands of websites and information sources available to gather useful investment insights. Many of these websites publish analyst videos with regularly updated information on what is happening in the markets around the world. You don’t need to be actively combing the web to gather investment information, you can in fact learn unconsciously. For example, you’d be surprised of the tips you can pick up if you simply turn on CNBC in the background while you are having breakfast. If they report that the markets that have already opened in Asia have fallen, you can be confident that the markets in Europe will fall as soon as they open also.
Even though points 1 and 2 suggest playing the market is not too complicated (and it really isn’t), you still need to know what is going on and to do this you have to spend some time not only learning but actually playing. So, take an interest in what is happening, listen to the news, read financial headlines, and understand what is happening in the world. Although you may be able to determine the market will fall, that is of no significance if you are not on hand to make your play. Equally, if you make money on a stock and leave it there too long, you may miss other opportunities or lose the increase. If you decide to play the markets, you have to be willing to give it your time.
As students, I suggest you open a free account with Yahoo, Plus500.com or other similar portfolio management sites and get started with mock investments. Set up your own portfolio by choosing stocks that you think will perform well and see what happens. Monitor them, make adjustments, buy and sell – you will be surprised at how much you can learn by actually “playing” the markets, especially when you have nothing to lose.
In essence, investing is not complicated. You simply need to play with it. Give it a try and see if you too can really make money. And remember, be informed but don’t over-analyze!