Simple, TO GET RICH!
Although this might be true for most people I think this is the wrong way to look at investing. Investing in the stock market is about patience and discipline. If your mind is focused on getting rich as fast as you can then this will lead to costly mistakes that may take years to recover from.
Many investors around the world have built their wealth slowly through the stock market. The world’s most famous investor, Warren Buffett, built his billion-dollar empire slowly over many years to become one of the richest people in the entire world. But it took time and patience.
There are relatively unknown investors out there that have amassed enormous fortunes. Grace Groner worked as a secretary for four decades. In 1931 as an employee of Abbott Laboratories she purchased 3 shares in the company for $60 each, for a total investment of $180. Grace Groner passed away at age 100 in 2010. Guess what her three shares were worth in 2010 (after stock splits and dividend payments):
Simply incredible! The Grace Elizabeth Groner Foundation was established to provide Lake Forest College students financial support with the $7.2 million she left to the school.
Now I don’t expect you to wait 80 years before you start to enjoy some of the savings you have built over the years but I hope you will be contributing more than $180 to your investments.
Develop Your Own Style
Let’s go back to Warren Buffett. Buffett believes that emotional intelligence is far more important than IQ.
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with a 130 IQ. Rationality is essential,” Buffett is quoted saying in the book, “Warren Buffett Speaks.” Even if you do have an IQ of 160, Buffett says you should just “give away 30 points to somebody else” because “you don’t need a lot of brains to be in this business.”
“What you do need is emotional stability,” he adds.”You have to be able to think independently.”
Buffett is telling us that you don’t have to be a genius to invest in the stock market. Attitude and behaviour are far more important. Developing your own style of investing will take time but will help you build conviction in the companies you have purchased. You can simply copy the investing style of any number of successful investors out there and this may turn out very well for you in the long run. However, will you be able to hold on when the market is crashing down? A full understanding of why you have purchased these companies will guard against your emotions.
Time and Energy
Developing your own style will take time and energy. There is a sea of information on the internet, in books, on tv about how to beat the market but which style to choose. I haven’t solidified my own investing strategy yet either. This will take time and lots of reading but I have evolved already in one year. I’ve become interested in microcap companies and the awesome micro cap community on twitter. I will continue to read about all different types of investing strategies. For the moment microcaps have caught my eye.
Robin Speziale published a book called Market Masters where he interviews money managers from Canada. Each manager has had wonderful returns using a wide range of investing styles from value investing, quantitative investing, commodity trading, growth investing and many others. This book is a great example that money can be made by investing and developing your own style.
What Type of People Make the Best Investors
Successful investors can come from any walk of life. Grace Groner was a humble secretary who turned $180 into millions. A recent Forbes.com article described Herbert Wertheim as one of the greatest investors no one has ever heard of. Werthheim is a trained optometrist and inventor who invested early and held great companies like Microsoft, Apple, and an airplane parts manufacturer named Heico. The stock market provides anyone with the opportunity to save and invest their money.
Smaller investors have the distinct advantage of not being limited to what they invest in. Large institutional investors (hedge funds, pension plans, high net worth investors) are limited to what they can invest in. They have to allocate large amounts of capital to have any sort of influence on their returns. Investing in smaller companies is usually out of the question. You and I don’t have these limitations and can purchase any company we believe will provide excellent returns in the future.
Why I Invest in the Stock Market
I started to invest in the stock market because I felt it provided the best opportunity to create long term wealth. Saving your money can be easily automated with direct withdrawals on pay day to a brokerage account (I use Questrade and will write a review in the near future). I enjoy researching and discovering new companies and putting them on my watch list. Once I have purchased shares I am now an owner of that company which is a pretty cool feeling. Knowing you own a tiny piece of a company that you may interact with on a daily basis.
Investing also gives me the sensation that I am spending the money I am saving so it kinds of is a best of both worlds scenario. I get to save the money but invest (spend) it at the same time by buying companies I believe in and look forward to watching them, and my investments, grow.
There are many different ways someone can invest their money. It all comes down to what you want to invest your time and money into. Do you like real estate? Then invest in rental properties. Love hockey cards? Then invest in hockey cards. Are you an entrepreneur? Then start your own company. The beauty of investing is these choices are your own to make. I choose the stock market because the possibilities are endless and I can gain exposure to every industry in the world in almost any country in the world, something that is much more difficult to achieve if investing in real estate.
Lessons I’ve Learned
The lessons I have learned in my first year of investing in the stock market:
- Anyone can be a successful investor in the stock market. By living below one’s means and saving their money they have the access cash flow to invest and grow.
- You don’t need to go to business school to invest in the stock market. There is a wealth of information and services out there that can assist you as you learn about analyzing companies. You don’t have to be able to craft some complicated discounted cash flow model or develop a proprietary algorithm to beat the market.
- Patience and discipline are key. David Gardner of the Motley Fool stresses the importance of investing for the long term. He believes that you should invest in a company with a plan for holding that company for a minimum of 3 years. Warren Buffett says “If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.”
The stock market gives average joes like you and I the chance to beat the best of the best. Individual investors have an advantage that big hedge fund managers just don’t have once they’ve grown too big. By being disciplined and holding quality companies for the long term I believe that you can accomplish your goals whether they be to save for retirement, buying a house, or gaining financial independence.
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I swear I proof read all of my posts multiple times but always seem to miss errors. Apologies in advance.