There is so much negative connotation when it comes to investing money in stocks versus almost any other investment asset. Given the recent stock market crashes that have happened in the last two decades, many people have written off stocks completely. Many feel the stock market is “rigged”, run by thieves and pyramid schemers or some feel that it’s a glorified gambling playground that makes Las Vegas look like SeaWorld in comparison.
One of the biggest problems of the stock market is that it’s too transparent. The value of stocks move up and down on a daily basis and it’s widely covered by the media. Even the slightest of changes in the marketplace are sensationalize by the media in story headlines. It is what it is. Headlines attract readers. Playing with people’s emotions is what gets readership. Other than the fact that money is involved when talking about the stock market, the correlation between it and a Las Vegas run casino ends about there.
It’s About Growth and Potential
So as stock investors are we gamblers? I certainly hope not. When it comes to investing in stocks, there are generally two camps. Speculators and investors. You don’t want to be a speculator. Those are the kind of people who roll the dice and hope to make it big. There is no free lunch when it comes to investing. Success takes time and patience, so don’t think that you’ll see astronomical gains or retire in the next month. That’s not how one should strive to invest successfully.
When we invest in stocks, we want to be investing because we believe in the companies that we own. That’s the whole definition of buying stocks, being owners of the companies in the stocks that we buy. This means that we need to put our faith behind the companies and believe that they will put our best interest first. That means that we want companies to generate large profits and share it back to the shareholders either through stock buybacks or dividend payments.
Banking On The Future
Being a successful investor doesn’t mean that you’ll become a millionaire overnight. We all have such strong desires to have everything now. Common phrases like “You Only Live Once” or “You’re Only Young Once” keep reminding us that we need everything now. With investing we need to think long term and believe that the future will be better than the present.
Imagine a scenario like this: You, a stock analyst and a day trader are put in a room of 25 Grade 8 students and asked to invest $10 000 on these students. The students promise to pay you back for your investment if they “make it big”. Yes this is purely a hypothetical situation.
The stock analyst would most likely do his or her research. Find the student with best marks. Find out which students have performed consistently at the top and perhaps give their money to 3-5 students. It’s a no brainer. Those students are consistent, the past history has shown that these students have the most potential so no doubt they are going to be successful.
The day trader would most likely find out who the most popular boy or girl is in the class and give all their money to that person. That might end up being the 100m sprint champion in the class or the American Idol auditioner that got on TV. The student’s cool, has lots of followers, what can possibly go wrong?
You as an investor, what would you do? What approach could possibly work given that these are 13 year old kids and there is no way to determine if they are the next Mark Zuckerberg or a thief on the street. As someone who neither has the time, or the expertise to go about choosing the best student, the smartest thing is to diversify. Yes. Why not give equal amounts of money to every student in the class?
This may sound stupid. Some students may struggle and ultimately fail. Some students might just become regular middle class citizens who would never be able to repay you; however some students might make it big. They might invent the next big thing, become successful doctors or lawyers. These are all unknowns, but you invest in everybody because you believe that these students will be better, smarter and more successful in the future than they are now.
This is the same reason why we should also diversify and invest in companies. We should always believe that the future holds greater wealth and these companies will be there to take advantage of it.
This Isn’t Vegas
Remember that success doesn’t happen overnight. Just like investing in those kids, a successful investor will take years or decades to accumulate their wealth. That’s because an investor understands the power of compound interest and how powerful that can be over a long period of time.
So long as we remain diligent and persistent, and continue to believe in a better future for mankind, then our own wealth will continue to grow so long as we remain invested.
If you’re looking for a get rich quick scheme. Then perhaps learning how to invest in the stock market isn’t for you. I’m sure there are many other places to go where one can gamble. I hear Las Vegas is a good place to start.