A 19-year-old who turned £200 into £200,000 in one year has shared his top tips for making money through investing.
Adam Mlamali, 19, from Milton Keynes, went viral earlier this year after revealing that he made a fortune from investing in stocks and shares, having taught himself how to do so through YouTube.
Now the teenager is sharing his top advice to help others do the same.
From doing your research to checking out the competition, here are five tips for anyone looking to cash in from the stock market.
KEEP A FINGER ON THE PULSE & CALCULATE FINANCIAL HEALTH
The financial health of a company tells investors a lot about whether or not it is worth investing.
Stay up-to-date on businesses you’re interested in by looking at annual audited accounts and quarterly financial statements.
And don’t worry, it’s not as complicated as it seems.
“A company’s financials are by far one of the most important metrics when investing into the stock market,” Adam told Jam Press.
“By looking into a company’s revenue history, you can gauge if there is potential for year-on-year growth that will give you a return on your investment.”
If revenue growth is slow or in decline, it could be a bad sign about the product or service being offered by the company.
Adam added: “On the flip side, if the revenue growth is consistent and increases year-on-year, it could be a good indicator that there’s an increasing demand for the product or service being offered by the company.”
Look at metrics like liquidity, solvency, profitability and efficiency – but don’t let one metric be the deciding factor, says the teenage business whiz.
Instead, consider each company individually and take their current position into account too.
Adam has paid subscriptions to a number of online news outlets, as well as uses free sites.
He said: “I use Marketwatch.com to check prices of American stocks when the markets are closed during premarket hours so I can plan my trading day.
“Marketwatch is also extremely good with news and updates on what is causing market movements.
“I also use Investopidia.com, which is extremely good for learning a new concept from a reliable source.
“I check Yahoo Finance Analyst Price Targets, which is great for looking at a company’s financial data and news.”
PLAY THE LONG GAME
Whether good or bad, news coverage can influence the value of stocks – so keep your ear to the ground but beware, investing is a long game.
So while temporary changes such as a product launch can fluctuate stock values, you need to think long-term.
Adam said: “News on a new product or service can very easily be a catalyst for the stock price to move.”
For instance, positive reports on a new product or service can drive up the value of stocks. On the other hand, negative news can also reduce the value of stocks in anticipation of a fall in performance.
Adam said: “As investors, we invest for the long term.
“If a product does fail within a business but the company fundamentally hasn’t changed we should probably aim to hold our shares.”
CHECK OUT THE COMPETITION
Adam said: “If your purpose to invest into a company is to help them bring their product/service to the market, it is important to look into other companies operating in the same market.
“Are there any reasons why the products offered by the competition may be seen as better in the consumer’s eyes?”
By finding out how your company stacks up against their peers, you can identify whether or not it will make a good investment.
Adam is currently invested in Palantir, an American software company – which he says already has a fair amount of “hype” around the stock – after investing in September 2020.
He said: “The company has a high price to earning ratio meaning that its share price is trading at a premium in comparison to its revenue.
“However, it’s an extremely innovative and misunderstood company – in comparison to its competitors, Palantir are years ahead and I am certain a lot of the current shareholders are invested in Palantir for the long term.”
WHO IS HOLDING YOUR STOCK?
Institutions and analyst price targets are also an important guide when you’re looking to invest.
In other words: consider who is holding your stock – whether it’s a big bank, Wall Street or other.
Adam said: “Finding out how much of your stock is held by institutional ownership is a good metric to see how safe an investment may be.
“Certain institutions avoid investing in high risk stocks for their clients and so their choice of investments are good indicators of ‘safe’ stocks.
A price target set by an analyst can also be used as a recommendation for whether or not a stock should be bought or sold and how much potential gain there is.
He said: “A price target set by an analyst is an expectation of where they believe the price can go or what they believe the stock should be valued at.
“If an analyst sets a price target of $15 from a company that is trading at $10, this can be a great indication to buy the stock.
“The analyst may know something the general public does not and they are generally experts from well-known institutions such as Goldman Sachs.
“On the flip side, if a company was currently trading at $20 and it has given a price target of $15, this may be an indicator to either sell the stock or avoid starting a position.”
LOOK INSIDE THE COMPANY
Put simply, keep an eye on the actions of people within the company you’re keen on.
Adam said: “Insider activity is a metric which can give confidence when choosing a stock to invest in.”
For example, if the CEO is buying a large amount of shares in a company, that is likely a good indication that it is doing well.
Similarly, if the same CEO is selling their shares, this could be an indicator that the company isn’t performing to expectations.
At the same time, insiders can buy and sell shares based on their personal reasoning so this shouldn’t be your only guide for buying or selling stocks.
AVOID GURUS
For newbies, Adam offered some sage advice: avoid gurus and relying on other people when investing.
He said: “Avoid paying people to tell you what stocks to buy and sell.
“The first few steps when beginning to invest in stock are crucial.
“If you rely on someone to tell you what to buy and sell during a time of the stock market having increased momentum it feels amazing, but you also start to have a reliance on that person.
“This is when the thin line is drawn between gambling and investing.
“It is much better to build a personal conviction as to why you believe a stock will appreciate in value and then learn as to why your conviction was right or wrong.”
START WITH INDEX FUNDS
Adam also believes investing in index funds is perfect for newcomers.
He said: “Index investing allows you to spread your risk over hundreds of individual stocks just by purchasing one fund.
“The S&P 500 fund spreads your risk across 500 of the US’s largest companies.
“According to Business Insider, the S&P 500 has performed at an annual rate of return of 13.6% a year in the past decade.
“If you had invested £20,000 into the S&P 500 and left if to gain an annual rate of return of 12% year on year, after a 45-year period you would then be left with over a million pounds in the fund.”
