The market is fascinating. An investor buys a share in a company and receives a share in profits in return. Companies unpin the success of the modern world. I believe a company harnesses human competitive and cooperative instincts. The members will hunt money as they might have once hunted wooly mammoths. The capitalist system is largely based on this institution. It is worth paying attention to.
Once a company is formed, the stock market allows the transfer of ownership. A share in a bad company can be transferred to a share in a good company at an agreed upon price. A multiplicity of factors must be weighed to calculate the value. Some of these include interest rates, projected profits, takeovers, mineral discoveries, economic factors etc.
It is the aspiration of many to make wealth through the stock market. I have been investing since I was old enough to open a trading account. I am often asked to teach others. Normally I refuse. The main reason for this is that most people have a totally unrealistic expectation of the market. Best case scenario I would hope to make a 30% return on my money. Below $200,000 trading capital I would be going backwards after accounting for living expenses.
If an investor wishes to buy and sell a stock themselves there are a great number of good investment books to start him on his journey. Some that I found very influential include;
The Way of the Turtle by Curtis Faith.
Describes the authors time at an investment company, they would buy a stock as it made a new high and hold it.
Stock Market Wizards by Jack Schwager.
Interviews with successful traders and investors
Reminiscences of a Stock Market Operator by Edwin Lefevre.
An market trader who became one of the wealthiest men of his day. He made and lost his fortune several times and eventually killed himself rather than make it again.
How I made $2,000,000 in the Stock Market by Nicholas Darvas.
An actor who found a winning method of investing by following chart patterns.
Technical Analysis of the Financial Markets by John Murphy.
A guide to constructing and evaluating trading systems.
Trading in the Zone by Mark Douglas.
The importance of your mental and emotional state in order to trade profitably.
The Intelligent Investor by Benjamin Graham.
I never read the entire book but it is a very well known book about valuation and analyses and Warren Buffett gives it a lot of credit. There are better books around on this topic.
People often don’t account for the unpredictability and risk. Some years I will lose money and some years I will make more than 30%. It all depends on the mood of the market. My advice to anyone considering trading the stock market is don’t do it. It is not a reliable way to make money. Not only will the new trader most likely lose his capital but he will also be missing out of a lot of the adventures that life has to offer. Many other jobs are so much more creative and social. Enjoying life is more important than sitting watching a computer screen all day. You are not going to meet any cute co workers working from home. You are not going to have any fun stories to tell. If someone is determined to invest I can’t stop them however. Here are some of the things I have learned.
As a result of my years of focus I have come to the conclusion that to be profitable in the market an investor should follow one of the following techniques
Buy ETF’s or Managed Funds
There is often only one recommended method of investing in the market for an inexperienced investor, buying exchange traded funds (ETFs). An investment company will buy or sell shares on your behalf. Buying a ETF’s is a great strategy, especially for someone starting out their investment journey or for those without time to research alternatives. In Australia some of the well regarded ETFs include those provided by Magellan Financial Group, Platinum Asset Mangement and Wilson Asset Management. There are also ETFs that focus on particular industries or countries. Anyone interested in profiting from the technology sector might be interested to buy the FAANG ETF which invest in Facebook, Amazon, Apple, Netflix, Google and other tech stocks.
Learn to trade
It is possible to make money by finding a profitable trading system. It is not easy to do and it is a long and painful learning curve. It could be related to moving averages, chart patterns, trading the spread, news announcements etc. There are many possibilities. Stay clear of indicators though (stochastic, MACD etc), they generally don’t work. To trade successfully also requires the necessary emotional training. Learning to not feel emotional about money is essential. It requires brutal honesty about your win loss ratio, putting in hours of practice every week and taking time off when the market is not moving in the right direction, perhaps this could last many months. I don’t recommend trading, it is not a great way to spend your time and money can be made doing other things that are not dependent of the state of the market.
Be a professional investor
This is even harder than to be a trader. It not only requires the painful to learn trading skills but also company analysis ability and a birds eye view of everything happening in the world. All the prices all the news and all the developments. Warships are moving to the Persian Gulf, Inflation is moving, the stockpile of lithium is rising, nickel production is falling, uranium policy is being discussed. Smartphones, AI and electric cars. It is very hard to know everything but there are chances for profits everywhere if you know where to look. But even this is a mediocre way to spend your time, it is only worth it if there is a higher goal that the money could be used for. Only the strongest, smartest, most disciplined and most humble can make it. The market is not your friend. it will move against you the moment you think you have mastered it. Humility is necessary to admit your mistake, to sell and take the losses.
Gamble
The last option is not such a crazy one. It is to put a percent of money on a few stocks that may go up. The key to gambling successfully is to find a good societal trend. At the moment AI is the big one. Put what you can afford to lose in that stock (the rest being in a reputable ETF). Hold it as see what happens. You might be surprised. An interesting thing I find is that the more certain I am of any stock then the less likely it is to be a profitable trade. Only put in a small amount. Never add more no matter what happens!
