An investment in knowledge
Investing in different kinds of money making instruments, such as stocks, derivatives and bonds is always based on the principle of increasing your assets. It’s most always risky, but there are ways of improving your chances of success.
What I’ve always found interesting about investing is the unpredictability of it all. No-one can tell exactly how the market’s going to change and that’s what makes it so exciting for many people. But with unpredictability comes risk. Most people who invest their money usually give control of their investment to a professional portfolio manager or they invest in small-risk-small-reward money market instruments. This is all well and good, but the rewards are quite insignificant. If you wish to make it big you have to take risks.
So-called “investment gurus” like George Soros, Jim Cramer or the legendary Warren Buffett didn’t make their fortunes by just playing it safe and risk-free. They did their homework and took big calculated chances that they estimated worth the risk. They did something different and didn’t confine themselves to the conventions of others. Due to the unpredictability of the market, taking chances is the whole idea of investing. In a CNBC article, “Cramer basics: 3 tips for young investors” written by Abigail Stevenson, Jim Cramer recommends taking risks when you’re young. That way if you mess up big time, you have your whole life ahead of you to fix that mistake. (Stevenson, 2015) Of course investing all of your student loan might not be such a good idea unless you know exactly what you’re doing. That is where doing your stock homework comes in.
Being prepared and vigilant is a key aspect of a successful investor. You have to have some critical trading skills in order to predict changes and estimate the risks. These skills consist of advanced math, planning and discipline. (Zomick, 2013) Although no-one can be 100% sure about the predictions and risks these skills definitely have at least some sort of value. For instance, Warren Buffett didn’t make his fortunes purely based on luck. Of course luck is always involved but it isn’t the main factor. If you can predict changes before anyone else you’re golden. In the words of Benjamin Franklin: “An investment in knowledge pays the best interest.”
Being vigilant is also very important for a would-be investor. Following the current events is a must because pretty much every major world event is probably going to affect the stock market in one way or another. For example in 2001 the terrorist attacks of September 11 had a major effect on the market as it caused investors in the U.S. to trade less and focus on stocks and bonds with less risk. This resulted in the biggest loss in exchange history for one trading day. (Davis, 2011)
In conclusion, you must always follow your instincts and take calculated chances in the stock market. You must be confident in your abilities and willing to take risks. Otherwise, what’s the point? If you’re not willing to take risks you’re just going to end up being a would-be investor instead of a true investor who’s to be taken seriously. Gathering knowledge and studying critical trading skills is a must in investing. It’s smart to follow in successful investors’ footsteps but this way you’re just going walk in circles because there are thousands of other people doing the same. Invest in your knowledge. Do something different. Break the norm. Think outside the box. And remember: “The only way to avoid mistakes is not to invest — which is the biggest mistake of all.” (Sir John Templeton)
Davis Mark, “How September 11 Affected The U.S. Stock Market”, September 2, 2011, Investopedia, http://www.investopedia.com/financial-edge/0911/how-september-11-affected-the-u.s.-stock-market.aspx, Read February 28, 2016
Growing money picture, http://www.bluerose56.com/category/growing-money/
Smart investing picture, http://www.savingthousands.com/smart-investing-best-investment-plan-for-your-first-1000/
Zomick Brad, “3 Critical Skills for Trading on Wall Street”, June 6, 2013, Skilledup, http://www.skilledup.com/articles/skills-for-trading, Read February 28, 2016