Some say that investing suits only for a particular type of people. I wouldn’t agree on that. I strongly believe that investing is a mix of competencies, habits, and traits of character that can be developed in every person who has a huge desire and intention to multiply his or her capital. But how do successful investors differentiate from people who are not familiar with the investment world or even are afraid of it (and, in a worst-case scenario, think that there’s somebody above the stock market who is the director of all bubbles, crises, and growths)? On the example of John, I will disclose what can help a regular American citizen to take the path successful investing.
I will tell you one story. Imagine John. Some average American John, who lives, let’s say, in Wisconsin and is working as a CNC machine operator on a local factory. John is a nice guy. He and his wife are living in their house, so, let’s say, they don’t have to pay out the mortgage. So, here is the payday, John got his money and is deciding what to do. After thinking wisely John realizes that he would like to become a successful investor. Nice decision, John! So, what to do? John is looking for a broker to invest some spare USD 3000 that he accumulated for a couple of months. He opens the newspaper and sees the advertisement: BECOME AND INVESTOR TODAY! 30% MONTHLY YIELD! John likes that, he will receive USD 900 for one month! Nice passive income! He calls the broker, signs a contract for 5 years with huge transactional fees and fixed charges. In 12 months John loses all his money. Why? Because you have to research thoroughly the information about your future broker, your portal to the world of investments. Unfortunately, John thought that it would be easy.
Let’s say, John went online, compared different brokers with the good reputation and nice fees. Let’s trade now! But where to invest? John enters the news website and goes to the “Business” tab. He sees the news that “Company X acquires company Z!”. “Wow, they will be bigger now, that means that their shares will cost more later!”. And invests all his money in Company X shares. Unfortunately, John didn’t know that this acquisition will create a lot of operational, legal and financial problems. The share price fell after the acquisition, John lost quite a lot of his money.
Probably, John will understand that he hasn’t conducted good enough research to buy the shares of the company. But how can you predict the share price only from the news website? How to go deeper? John understands that he doesn’t have enough knowledge to do the best buy choice. So, he takes up a couple of online courses and reads a lot of information on the net about investment choice. Finally, John knows how to understand the financial statement and what leads to increase of share price and what leads to negative.
So, now John knows how to go deep into details and how to predict the possible results of the company stocks performance. He conducts a huge research and finds a great company which is doing quite well now and will probably continue a stable growth in the future. He puts all his money into that one. But one day the hurricane destroys one of the company’s factories and the share prices plummeted. Poor John lost a lot of money as he put everything in these shares. Well, even in good performing companies there might be unexpected events that will cause huge losses. Well, what’s the way out? Diversification.
Well, John understood his mistake. He conducted analyses of different companies and picked some of them. He evaluated the risks and split the buy-ins in each company respectively. What is happening now? It is likely that John is doing quite well! Of course, some of his shares went down, but the majority is going up. John is doing the 10% yearly yield, which is quite fine. Putting some part of the salary into broker account, he increases his capital and probably will earn a good money for retirement.
So, what did finally our regular John did to succeed? First, he researched. Independent research is a very important part of investor’s everyday routine. Next – John learned. To understand what is going on in the company you should understand operations, marketing, human resources and other business issues. This will help to take the more weighted decision. And the last – diversify. A stock market is a volatile place and you never know what is going to happen there. Diversifying you can decrease the risks of losing a large part of the capital. John did a lot of mistakes to come to this. Don’t make the same mistakes! Read more about the investments on my blog and invest responsibly!Follow me in social media: