Welcome to Part 1 of this multi-part series of blogs, where I will teach you a better way to approach investing in the stock market.
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In Amsterdam, in 1688, a book all about the stock exchange was published by a Spanish Jew called Joseph de la Vega. Written as a conversation between a philosopher, a merchant and a shareholder, ‘Confusion of Confusions’ exposes the many scams and cons that were rife at that time and are still pretty common to this day. A review by Forbes magazine said;
“You will see between its staid lines that, despite what the media says, nothing really important has changed in the financial markets in centuries.”
De la Vega set out Four Rules for ‘speculation’;
‘The first rule in speculation is: Never advise anyone to buy or sell shares. Where guessing correctly is a form of witchcraft, counsel cannot put on airs.
The second rule: Accept both your profits and your regrets. It is best to seize what comes to hand when it comes, and not expect that your good fortune and the favourable circumstances will last.
The third rule: Profit on the share market is goblin treasure: at one moment, it is carbuncles, the next it is coal; one moment diamonds, and the next pebbles. Sometimes, they are the tears that Aurora leaves on the sweet morning grass, at other times, they are just tears.
The fourth rule: He who wishes to become rich through this game must have both money and patience.
Surely that last is just as relevant today as it was in 1688. In fact, if you ask all my members around the world since 2005 what my main rule is…. They will tell you Patience.
The one thing throughout the ever-changing history of the stock market that has remained constant has to be the chance to make a fortune, balanced by the very real risk of losing a fortune even faster. For most investors, the stock market is merely a sophisticated form of gambling, a corporate casino where fortunes are made and lost overnight. As you will see further on, it really doesn’t have to be this way. But too often it is, and it is because people are impatient, greedy and most relevant of all, ignorant of how to make money safely, whether the market is going up or down.
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Is The Stock Market Evil Then?
No, of course the stock market isn’t evil. The intentions of some who exploit the market for their own ends might be considered in the evil category, but not the market itself. The stock market is merely a vehicle which anyone can use to make (or lose) money. It is a means of transportation and, like other forms of transportation, you have a choice. You can walk, catch a bus, take a taxi, drive your own car, use the train, fly or hop on a ferry. You choose the most appropriate method of transportation, commensurate with your means, to get you from A to B.
The stock market is no different so long as you don’t try to ‘game’ the system. Get greedy and swallow the false promises of those who only make money when you spend yours and you will quickly find the car will break down, the plane will crash or the ferry will sink. Get an education so you can decide which mode of transportation will get you where you want to go in comfort and safety and you will be fine.
I am sure you have read something about the history of the stock market and the bubbles and crashes. Take a moment to pause and reflect on what it is exactly you are hoping to achieve with your own involvement in the market? If it is mega returns on your money invested, especially overnight or within a few weeks, then you are reading the wrong blog. While the majority of people who buy and sell shares and trade on the market do so to make spectacular gains over relatively short periods of time, the very same majority usually lose most if not all of their investment, and sometimes even more besides.
You do not want to be one of those people. Nor can you be one of the few who make fortunes whether the market rises or falls because they have manipulated the whole thing to their advantage. But you can make a decent living from investing through the smart application of strategies such as covered calls, and you can do it over a long period of time, along with any market conditions.
“Compounding is mankind’s greatest invention because it allows for the reliable, systematic accumulation of wealth.” – Albert Einstein
Just as with the secret of compound interest on a deposit being time, so too with the share market. If we look closely at the charts, we see peaks and troughs; rises and falls, often on a daily basis. At some time this year, you will see at least one headline claiming ‘Billions wiped off the Stock Market’. There will be a sad story detailing how in one horrifying afternoon the value of shares plummeted umpteen billion dollars. If you owned a million dollars worth of Stock X in the morning, it is worth just $3000 this afternoon! Oh no! We’re ruined! Not so.
Let’s start getting into the nitty-gritty of it in the next blog. Click here for Part 2.
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