Stock Market Investing Guide for Savers
The Stock Market Investing Guide to ride good times and escape bubbles.
Jack was desperately looking for a stock market investing guide. He was desperate because he saw all his friends around him earning more money in the stock market than that he could save from his normal salary. Jack was focusing on his job and his family. He had no time to spend on researching stocks and investments.
They were living a frugal live and had built a considerable savings nest. The year was 2006. But jack was not looking for a get-quick-rich scheme. He had seen what happened to the savings of some of his other friends during the collapse of the dot.com bubble in 2001 and 2002. Thus, he knew that he needed a sound stock market investing guide for both the good and the tough times… one that would get him rich taking the long-term approach.
Before showing you what to read next to learn more about the long-term investing guide that Jack was looking for, let’s start first with some explanations. This is important for you since the main enemy for every investor is a lack of understanding. When you understand where you invest your money in, you will see the risks and you’ll know how to avoid these. One of my basic investing rules is to invest only in what you understand thoroughly.
Remember this about Stock Market Investing
When you own a stock, you own a certain share of that company. Companies are selling shares to the public to raise capital to grow their business (and to make the founders, management and first employees filthy rich as well). Most stocks are owned by institutional investors like pension funds. Many private investors own stocks as well.
Investors own stocks because they expect that these stocks give them a good return on investment. When stock market investing, investors are buying and selling stocks to each other. Those who sell their stocks probably need the money for something else or think that they know a better investment. Those who buy believe that these stocks offer them a great or even the best return on investment.
"When you buy a stock, there is always someone on the other side who thinks it is better to sell the stock for this price."
The stock market is in this respect different from a normal vegetable and fruit market. There you buy something that someone else has produced and they sell it to make a living. At the stock market you buy a stock that someone else does not want to own anymore.
Only the future can tell who made the right assumption to buy or sell. And one of my other basic assumptions for investing is that nobody knows the future. Thus when investing, you can have only expectations. And you would need to check on a regular basis if your expectations are still in sync with reality. You’ll never know for sure what will happen. Investors with long-term successes are humble.
Stock Prices are not this…
The price of a stock is what the buyer accepts to pay and the seller accepts to receive for exchanging the ownership of a share of that company. These prices change all the time. Prices reflect all the information that is out there about this company, the industry, the economy and the world. But prices do not only reflect information and the expected profits of the company. They also reflect emotions like fear, hope, panic and greed. And they could reflect trends, automatic trading orders, forced selling by people to cover their debts etcetera.
There is one thing that stock prices are not. Stock prices are not rational. In my opinion nobody can fully understand why a stock price is as it is at that moment. It just is. If you think it should be higher or lower, you may know something that millions of other investors do not know. To educate yourself, find here the best stock market investing books on Amazon.
The Irrational Market
Stock prices for even the most stable companies can fluctuate enormously over time. For example the Coca Cola stock price bottomed just over $39 in 2009 and hit close to $71 in 2011. Do you really think that the long-term market and profit expectations for Coca-Cola are 82% better in 2011 than it was two years earlier? Emotions, the overall economic situation and long-term trends and bubbles can cause a stock price to deviate far from what others would call a reasonable price.
In my stock market investing guide, I do not judge stock prices. I just accept them as they are. Because in the world of stock markets, I do not know what a reasonable or fair price is… and I do not try to guess what it is.
A famous investor once said something like:
“Markets can behave longer irrational than investors can afford the losses.”
One of my investing rules is therefore: Do not fight the market, ride it.
From $1,000 to $61,840 in 61 Years is Not Enough
Despite all the irrational market behavior, stock markets have offered a great long-term investment opportunity. OK, as nobody knows the future, nobody would know for sure if stock markets will continue to offer great long-term investing returns. But till we see otherwise, I assume they do. They have done that for centuries. I don’t fight that, I ride it.
For every 1,000 dollars that you would have invested in the Dow Jones on January 2nd 1946, you would own $61,840 on January 2nd 2007, 61 years later. Thus in 61 years, your money would have grown 61 times over. That is the power of investing long-term in the stock market. No savings account or investment in corporate or government bonds that top that.
These are great returns. And still, one of my other investment rules is that these returns are just not enough… if there are simple ways that take little of your time and that can reduce your risk and improve your returns on investing further.
At this Stock Trend Investing website you can read all about the Stock Market Investing Guide that Jack (the guy at the beginning of this article) was looking for.