Investing in the share market can be a very rewarding business. However, the key to success is exactly that, treating it as a business. Could you ever imagine getting into business for yourself to make a loss? Why would you even bother starting up a business without a sound business plan, a strategy and a financial budget which indicates a high probability of success?

Moreover, would you start a business without the right tools to operate your business effectively? Well there are people who do and unfortunately, this isone of the main reasons they fail to succeed.

Another common characteristic of a successful investor is discipline. You can only stick to a business plan if you have the disipline to do so. I am sure that you have heard the saying "Pain of discipline or pain of regret". Think for a minute what this saying means to you! In this article I will cover some of the key steps that could be taken to develop an investment business plan.

At the outset, I need to emphasise that one of the greatest investment risks is the risk of not investing. Yes, it is true, investing has a risk of loss, and no one person can. Yes, it is true, investing has a risk of loss, and no one person can guarantee you a return, if any at all. However, the risk of not investing has at least one guaranteed outcome, and that is NOT achieving an investment return. No capital growth.No passive income. Not achieving your financial goals. It makes more sense to invest and educate yourself on ways to mitigate the risks rather than to sit back and do nothing and therefore not to invest.

One way to start to reduce these investment risks is to have an investment plan that can be tried, proven and then followed and reviewed. After setting your realistic investment goals, you need to put a plan in place to attain them.

The Steps involved in developing an Investment Plan

Taking your investing seriously is the first step before anything else. If you are serious

about it then you will seek professional advise on the tax and legal structures you can set

up to invest within. Will you be investing under your Self Managed Super Fund, a

specifically setup invetsment company, a Family Trust, joint or individual personal

accounts? All of these need to be considered and there are problably many more as well.

The key here, however, is that as long as you know what your investment goals and time

horizons are, then you can select one or several of these structures to match your different

objectives.

So lets go through the steps, assuming that you have spoken to your tax planner and

possibly even your financial advisor.

1. Develop an investment strategy

What type of stocks do you want to find? a) capital growth potental, b) income or c)reduced risk or some combination of these. The type of stock is usually dependent on your time horizon (e.g. saving for retirement (capital growth) vs supplementing income now (dividend paying)) and your personal tolerance for risk. What are the key attributes of these types of stocks. Consider balance sheet strength, gearing, dividend policy and history, revenue growth, sector outlook, competitive strengths and weaknesses etc. All this information is readily available through The Bourse by Bourse Data.

2. Finding potential opportunities in the market

After you have the strategy down, you need to be able to search through the many hundreds of listed companies on the Australian Stock Exchange. Don't forget you need the ability to test if your strategy works, and does so consistently over a period of time, maybe three to six months or even longer. At this stage having software such as The Bourse, allows you to input your strategy and scan the market by clicking on a few buttons. I would say that there are not many people out there who would want to read through the 500 pages of the Aspect Huntley ‘Shareholder' book, however, a great refernece to have at your side.

3. Evaluate and Research any opportunities

In many cases you cannot systemise or automate all of your desired conditions set up in step one, so some further investigation and research may be needed to confirm that the found opportunites are worth investing in. If there are several opportunites that come up in your market search or scan you may also want to weigh up the reasons for going with one investment and not another - one thing to consider here is risk versus reward. That is, if the potential risk may be close to or even higher than the potential reward then stay clear from that investment.

4. Timing your entry

One of the key characteristics of a professional investor is getting the timing of the entry just right. You don't want to get in too early as you will simply be putting money into an investment that is going to need a lot of time to get going and your cash may be better off sitting somewhere else earning better returns (even a humble bank account). For this step I use some very simple technical analysis to draw the overall trend of the stock and the short term trend, support and resistance points and finally narrow down the time to trade. Software like The Bourse provides a complete set of charting tools that can aid you in drawing the technical anaysis you need.

5. Place Your Order

It has been well researched amoungst the ultra wealthy that once the research has been done and the decision has been made then don't turn back, don't come up with all the excuses as to "BUT this and BUT that". If the company's fundamental performance meets all the set criteria and your research shows only potential upside, backed up by the technical analysis giving the appropriate timing for the trade then don't procrastinate, pick up the phone or log onto your online broker and place the order.

6. Record and Review

Good record keeping is most important. A bit of effort at the time of each trade will help you keep an up-to-date record of your current portfolio valuation and your standing in the markets at any point in time. A simple yet easy to use portolfio managament service, either software or web based will do. Just make sure that you use it. Many trading software and data suppliers provide portfolio managament services as part of an overall service offering. A Bourse Data subscription provides these services for no extra charges. You should also keep a list of stocks that you currently own in a watchlist to help you monitor their performance. Maintaining your technical analsys on these is also important to identify when it may be time to exit your position or even to accumulate. Most importantly, the word review also means maintaining a "Stop Loss" price and if this price is reached you need to take action.

7. Repeat The Process

You basically need to start again from point 2. Remembering that every 3 months more companies bring out profit results and fundamentals change. Stocks that came up in scans before may not appear now and new ones may also pop up. As an investor it is your job to evaluate these changes in results and determine is it time to buy shares in a newly found company, sell some of the shares that you currently have or accumulate on existing positions.

1. You own a part of the business

When you invest in stocks, you do not invest in the market (despite what you think). You invest in the equity shares of a company. That makes you a shareholder; you now own a small part of that business without having to go to work there. The good news is, since you own part of the company, you are entitled to a share in its profits. The bad news is that you are also expected to bear the losses, if any. That is why investing in shares is risky. If the company does well, you benefit. If it does not, you lose. There are no guarantees whatsoever.

2. In the short-run, the price of the share can wildly fluctuate

Let's say the company fixes the price of each share at Rs 10. This is called the face value of the share. When the share is traded in the stock market, this value may go up or down depending on supply of and demand for the stock.

If everyone wants to buy the shares, the price will go up. If nobody wants to buy the shares, and many want to sell them, the price will fall. The value of a share in the market at any point of time is called the 'price of the share' or the 'market value of a stock'. A share with a face value of Rs 10 may be quoted at Rs 55 (higher than the face value) or even Rs 9 (lower than the face value).

So you might have paid Rs 15 for a share which is now quoting at Rs 12. Don't panic and sell. If it is a good company, the share price will eventually rise. The prices will get influenced by the market sentiment and the general direction of the market. As a result, you may see short-term slumps.

3. Always invest for the long-term

The best way to make money is to buy low and sell high. This means you should buy the share when the price is low and sell it when it is high. That is why you must buy in a bear market. This is a term used to describe the sentiment of the stock market when it is low and the prices of shares have generally fallen. The best time to sell is in a bull market, when the sentiment is high and the prices of shares are rising. But it is very difficult to time the market. In fact, no one can do it. If we could, we would all be millionaires, That is why, when you invest in the market, it is best to invest for the long-term. Hold on to your shares for a few years before you think of selling them. Companies increase their sales and book higher profits over the years. This will eventually reflect in the share price, so ignore the short-term slumps. Once you decide that you are in for the long haul, you can ride over the bear and bull runs with no stress at all. Over time, the price of your shares will appreciate. If you are getting a good price for your stock, keep selling small amounts at regular intervals. Keep booking profits.

4. Decide how much you want to invest

Always remember one basic rule in finance -- if something gives you higher returns, that's usually because it carries a greater risk. That's the reason why not-so-good companies will pay you a higher rate of interest for your deposits. The same reasoning goes for stocks too -- they give higher returns than, say, bank fixed deposits because they are more risky. So the amount of money you invest in the market depends on your capacity to bear the risk. If you are young with a steady job, you can invest a larger proportion of your income in the stock market than, say your parents who are close to retirement. If you have a lot of debt to repay, avoid putting too much of your money in stocks. It's best to decide how much of your savings you will allocate to stocks, and stick to that plan. Don't get swayed by how much your friend is investing.

5. Don't rely solely on 'good advice'

A smart investor should never invest buy shares of companies he doesn't know much about. Relying on 'advice' from friends is not always a great idea. Do some groundwork yourself.It doesn't matter who is buying the stock or who is recommending it. Steer clear of such ways of making a fast buck. These tips will land you in a soup. When you hear of a 'hot tip', dig further. Take a look at the company's profit and loss statement, which would have been audited by chartered accountants. There is a wealth of information here. To understand the information in a Profit & Loss Account

Once you have developed an investment plan, then test it over

some time. "Paper trade"with it, make some changes and re-test

it. Use historical chart data to test your technical analysis 

and review company fundamental performance over a 5-year period.

Treating investing as a business and not as a hobby, will help 

you give it the respect it deserves.After all, you are investing

your hard earned money and not the paper cash in some monopoly game.

Always invest with quality and value in mind. Reduce your investment

risk by doing your own research on the companies you are about 

to invest in and continue to educate and improve your skills in

these areas. Investing is not about making huge overnight returns

(although much appreciated when they occur!), it is about building

quality assets over time that can produce significant capital growth 

and income without excessively risking your

investment capital base.

Always remember to combine company fundamental information with

 technical analysis. It will provide you with the best results 

everytime, and I don't mean just profits, it may help you avoid

some disasters as well. Stock market traders typically ignore

the fundamentals but review their positions much more frequently 

than investors and often have in place much finer stops to manage

 their exposure.