Investing is a common theme in many peoples lives there are many types of investments whether it be real estate, stocks, bonds, ETFs, or into yourself applying different mental models, staying consistent, or constantly trying to learn. You can invest to grow your capital, develop a process, and gain true inner happiness starting your own path and getting down to business. They’re are different roads in investing where you can apply knowledge learnt in different ways to get to the same endpoint as the smart money.
The only reason people buy stocks is because the money is quick and everyone’s doing it so why cant you right? But this is just the surface of investing, the gains come with the knowledge, and the knowledge comes with productivity. Being an investor means understanding your risks and having a business you can hold for a long time horizon where you can sleep at night without checking the price every second, of every minute, of ever hour… you know what im getting to. These companies value can be unlocked by letting your thesis/strategy play out. Deals in the business world move so slowly with a long series of steps, so the most efficient way to not have FOMO, is buying consistently and holding whatever you can afford.
As Buffet says his favorite time period to hold a stock is forever, these should be strong companies that do not let headwind bother them on average most investors have a timeframe of 3-5 years on the minimum. As an investor the goal is to maximise where you can allocate capital to get the most value out of it(Opportunity cost) while looking at goals, and your plan. Any capital put in the market should not be savings nor money you need at your disposal. When putting money in the market you being an investor your thinking long term, retirement is not an age but an amount. You should be avidly putting money in the markets(in increments based on your plans, goals, and amount(retirement number that is). Your equity will grow along with your knowledge, other words known as compound interest “the 8th wonder of the world”-Estine
What is a stock?
A stock is a business, traded under a ticker, these stocks are listed as a part of an indexes such as the SP-500, the NASDAQ, and even the NYSE. These are just some examples of famous US stock markets, usually these companies offer shares to shareholders in exchange for money(think of shark tank or the og dragons den-money in return for ownership). Being a shareholder means you have ownership of the business under your name, you are paying their management to do all the hard work. With stocks come more risk, they may offer more risk then other investments but they can also help you grow your money in an excelled way. Investing in individual companies can be very rewarding but also have more volatility for adults or someone that may not want to monitor an individual business. ETFs will give you average returns but still compound your money and offer less risk for someone who cant afford any.
There are multiple variables that have the power to move stocks although they are based on supply and demand, their are a number of social/micro/macro reasons whether it be the hot new Forbes article that pours investors in, a institutional investor betting on the stock and buying a large quantity of shares, or the overall growth rate of the industry/sector, ex. new emerging corona markets-mask demand, in inverse corona affected shrinking markets- hospitality/transportation. These are just a few metrics to look for when deep diving into a company as an investor you want to learn the business model, know why your in that company over others/competitors, and know who your playing against and with(who else is betting on the stock) you can also look at there track records to get an estimate on investor success rates. We will go more into the depths of looking at businesses in this series.
As previously stated ETFs will give you average returns of around 10% annually offer a bit less growth but much less risk. Lets look why… an ETF is like a basket of different businesses that you can invest in through one ticker, and an index fund is like a ETF but with more businesses within(hundreds). ETFs/Indexes mitigate risk there is less volatility because you own parts of many businesses with different weightings if one goes bankrupt you wont loose the principle which is the overall amount of capital invested. This is because you haven’t solely invested in that singular business. This is still a renowned way to invest it will lead to strong returns but must be in context of a long time horizon.
There are many options for ETFs that have different makeups to businesses you want exposure too. As an opinionated example MGK is a worthy long term hold with it heavily weighted into some of the worlds biggest businesses such as Amazon, Apple, Microsoft and many more. You can invest in good businesses indirectly to minimise risk and in a cheaper fashion. For example Amazon, if you like the business and want exposure but cant really afford the current price per share(3000$).
This is just one example of a solid ETF there are hundreds that can be suited to sectors, or certain stocks. When looking at ETFs something to keep in mind which is the Expense Ratio. This is how much you pay the financial institution to monitor the ETF, every once in a while they may also take a bit off one position and add it to another that may be preforming better. These are actively managed funds which is the reason for their too be small fees.
This is the beginning of the series Zero to Hero, made to teach financial literacy and make it common theme in our every day lives, to educate, and learn the greatest wealth building machine. Within this series we will learn how to spot a strong business, how to know what to look for, and anything investing related from personal finance to stocks and principles.