I’m really bullish on stocks and the economy but I don’t think you should waste your money investing in stocks. You might as well flush it down the toilet. Or throw a big party. Don’t give it to charity either. We already went over that. And please don’t buy a home. Just relax a little bit if you have some extra money.
I’ve been writing about stocks for almost 10 years now. The first time I ever got paid for writing anything was a check for $200 I got from thestreet.com when I wrote in late 2001 about stocks that were trading for less than the cash they had in the bank. I never cashed the check.
Its really hard to buy stocks. Its not just picking stocks and watching it go up 10,000%. Its buying them and watching them go down 80% before they end up going 20% from your original price. Its waiting. Psychology is at least 80% of the game. I don't need to go over the statistics. Most people sell at the bottom and buy at the high.
I think I'm pretty good at it but maybe I'm fooling myself also. Because I can think of at least 3 times when I sold most of my holdings at the low and bought at the high. Even after I had years of experience. SOmetimes its psychology, and sometimes you just have to do it. There's only so much money you want to lose. So if you hit that point, and you sell your stocks, and then they go up, then guess what -- you just sold at the low. Congrats. You're a disciplined idiot. Just like me.
(9 out of 10 people think they are an above average drive. 9 0ut of 10 people think they are an above average investor. Both are impossible)
I know another guy. He has code that scours the FDA databases looking for any microscopic changes in any documents. You know what happens when some of those documents change just a little? A press release comes out a week later. A stock gets halted. It opens up or down 50%. Who is going to win the dollar? You, or the guy who wrote 100,000 lines of code scouring the FDA databases.
6. True wealth in the stock market only comes if you make all the wrong decisions and then get lucky.
We already know because of the above that you are probably not going to be among the best. So, if you pick some stocks and passively hold them maybe you'll earn half that: 7%. Are you happy with that? Then fine. But given the volatility in the market I don't think thats a good enough return for most people. Look,some people are good. And some people should invest. But most shouldn't.
Some trading firms set up their operations right next to the buildings with the computers that process all the trades on the exchanges. They then pay for high speed cables to go right into these exchanges so their trades get their before yours. These guys make a lot of money in the markets by getting in the middle of every bid-ask faster than anyone else can. Its a race to the bottom but billions are made. So we see now the way to huge wealth is to either trade in millionths of a second or to hold huge blocks of your net worth in one stock for years. This is not a good strategy for 99.9% of people.