Day 14: Long Term Investing

As far as opportunities go, there's no more accessible means for anyone and everyone to grow their money than the financial markets.  You can start with just a few bucks in the stock market and bond market.  You can't really do that's with other investments like real estate.

Investing is becoming more of a necessity. The last lesson on Retirement Investing was a reminder that the days when everyone worked the same job for 30 years and then retired to a nice fat pension are gone. For us average people, investing is not just a helpful tool. It’s the only way we can retire and maintain our present lifestyle.

You have 2 main ways to make money in the financial markets: investing or trading.  You can use some money for investing, some for trading, but it is imperative understand what is the approach to each.   We'll start with investing.

Investing is acting as the owner.  That is the frame of mind with with you must approach your investments.  This is the frame of mind that guides your decisions about investments.  For those of you who own businesses or are managers helping run businesses, you spend time possibly money to grow real value out of the company.  Value could be more sales, more customers, more properties.  If you don’t own your business, we’ve all invested in ourselves to increase our value in the world in one way or another.  Education, gym memberships, and reading MarketHeist to empower your financial abilities as you’re doing right now.

 

Committing for the Long Term

From your own experience, you know growing one’s value or a company’s value or a country’s value takes time.  Real world value, called Fundamentals.  It takes time to develop products, signing deals, legal issues, open stores, then there’s the matter of marketing, and gaining customers just to name a few.  You can invest in publicly traded companies through stocks, bonds, or even options.  You can invest in countries through stocks, bonds, and their currency relative to other currencies with forex.

But it takes time.  That is the keyword.  When committing money for an investment, you’re committing to staying with the investment for months if not years.  First, you have to sit through the daily and weekly ups and downs any company or country has as they go through growing pains as well as endure changes in the environment.  Also, remember that short term supply and demand of the assets (stocks, bonds, options, futures, etc) cause the prices of these to move all over the place that may have little to do with fundamentals.  But the fundamental value of a company or country is real world value.  Which means, over time, this real world value will be reflected in the stock price (or bond rates, etc).

 

Focus on Real World Value

When analyzing fundamentals, what should we look for so we’re not be distracted by these ups and downs?  If the company or country is doing the right thing at the right time.  This cuts through the noisy news and stock price, right to the real value of the company.  Again, we’re acting as the owner, so that’s what an investor cares about.  Companies that do the right thing at the wrong time won’t work.  Doing the wrong thing at the right time won’t help a company or country either.  Yes, the company itself has to be operating well, which means you’ll have to understand the business.  Investors also have to know the environment.  The season.  This means understanding competitors, industry, economy, and future direction of these.

Investors in mutual funds, hedge funds, managed futures, or other managed accounts.  Listen up!  This applies to you as well.  Each of these investment choices are businesses too.  Again, you must think of yourself as the owner.  These business don’t deal in clothes or machinery, they deal in financial assets like stocks, bonds, or futures.  It is your money, so it is still up to you to monitor how these funds are doing.  Whether the fund manager made or lost money, are they doing the right thing at the right time?  The goal of some funds is to make a little bit of money consistently while others may acquire damaged companies and make a lot of money when those companies turn around.  Know what your fund is trying to do in the current environment, then assess if that makes sense.

 

Your Moves as an Investor

For each investment in the financial markets, you act as a silent investor.  You don’t get to make decisions.  You’re not a board member, and your voting shares have essentially no voice.  How you decide to invest, meaning be involved as an owner, is how much to invest.  Fully invested, partially invested, or not invested at all.  Investors can also short, i.e. bet against, a company’s stock.  But it is CRITICAL to use either a stop loss or option strategy as protection against infinite losses.  For example, investing long (buying) in a $10 stock, the most you can lose is $10 because the stock can only go to $0.  If you short a $10 stock, what if the stock goes to $600 or $700 like Apple or Google?  You face essentially unlimited losses.

Diversification is the other critical aspect of investing.  With diversification comes portfolio management and asset allocation.  Not having all your eggs in one basket means not investing in just one company’s stock.  It also means not just investing in stocks.  It also means investing with different strategies or investing with fund managers that each have different strategies.  The time spent on constantly keeping up with just one company can take some time.  For most people, investing in more than 7 stocks on their own is more than they can handle.  It may be more realistic to invest in a variety of funds, and just keep up with the funds.  Leave the individual stock investing to the fund managers and their team.  That’s what they get paid to do.

Steps of Investing

  • Analyze

  • Strategize and Plan

  • Adjust

  • Review

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Market Merchandise: Preferred Stock, Common Stock, Commodities, Real Estate, Currency (Forex), Municipal Bond, Corporate Bond, Bond, Mutual Fund, ETN (Exchange Traded Notes), ETF (Exchange Traded Fund), Futures, Options, Stock,
Styles: Fixed-Income Investing, Value Investing, Growth Investing, Dividend Investing, Active Investing, Investing,
Strategies: Relative Value, Directional,
Skills: Housing Starts, Market Cap, Existing Home Sales, Unemployment Rate, GDP (Gross Domestic Product), ISM Manufacturing Index, Durable Goods Orders, Nonfarm Payroll, New Home Sales, Fundamental Analysis, Economics, CPI (Consumer Price Index), Inflation, Economic Analysis, Portfolio Management, Risk Management, Earnings Estimate, Guidance, Jobless Claims, Fundamentals,

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