The feedback from the interview I did with Borderless concludes that it was entertaining but my investment philosophy was unclear. I agree. By attempting to keep answers brief and avoid coming across as a boisterous know-it-all, I failed to convey how I grow my money. This new article series will rectify that.

 

Forget Short Term Trades

The stock market is not a get rich quick scheme. Don’t fall for the ridiculous Forex ads you see around the web which purportedly outline how you can make money trading currencies. Let me tell you, YOU can not make money trading currencies!

The same goes for flipping stocks for a quick profit. Yes, often you can make a quick buck flipping something after just a few days but you can just as easily lose. I suggest playing roulette instead. Your chances are better as there’s always the green.

 

What Makes a Stock Rise or Fall

A stock exchange is simply where you can buy an ownership stake in a company. A stock is proof of your ownership. How big the float is, i.e. how many shares outstanding a company has, determines the ownership percentage a stock represents.

A stock’s price is driven mainly by:

  • the company’s fundamentals
  • growth projections
  • investor’s sentiment
  • industry outlook

This makes them notoriously hard to predict. A company can grow earnings yet still see its share price fall. The industry outlook for the sector it operates in may have soured. Or it’s debt burden and the interest it pays to service it may both be on an upward trajectory. Despite solid earnings on the latest quarterly report, sentiment may drive the stock into the red.

The danger posed by investor’s sentiment should not be underestimated. Lord Keynes’ classic quote sums up why… TO READ ON SUBSCRIBE AND BECOME A PATREON.

  • Dirty Dave

    Great article! I’ve been in the market since I was 23 years old. (almost 20 years now…) I’ve had my ups and downs as everyone has… The only thing i would have to add…. is that you don’t want to get emotional with your investments. If it was a good buy based on the fundamentals when you bought the stock, then great. If two years later, those fundamentals have changed for the worse, and the stock is moving downward…. don’t be afraid to sell it if it no longer meets your personal threshold for risk tolerance or your criteria in the fundamentals at that time. Constantly trading based on headlines is a sure fired looser. Pick time proven companies that consistently grow revenue, and provide value to their shareholders. On a long enough timeline… You’ll do just fine.

    • Harald Baldr

      Sounds like you’re doing well as you’re still in the game nearly two decades later 😉

      Good point on emotions and changing fundamentals. I’ll make sure to include sections on that in future articles.

    • Brianmark

      Great advice, dirty Dave.

  • Brianmark

    Great article. You explained in simple terms, many complex ideas. I’ve read 3 of the books on your list, including Malkiel , and the two Jim Rogers books. You should read “Investment Biker” too. The other two things you said in your interview that I agreed with were: the stock market is rigged to go up, and the US does not have the worst financial balance sheet of countries in the world. I plan to read some of the other books you suggested too.

    • Harald Baldr

      Just bought Investment biker. Thanks for the tip.

      Let me know what you think once you’ve plowed though the other books 🙂

      Yes, the US gov’t is living way above its means, but so is everyone else. If US goes down, I doubt other countries will prove much of a safe haven.

      • Brianmark

        One more book that I liked is “Crisis Economics” by Nouriel Roubini. He explains the 2008 crash very well. Great book. The documentary “Inside Job” by Charles Ferguson also covers this crisis well and has interviews with Roubini and others.

  • Ole

    What is brk-b and voo? Are both fonds, or is it a place to buy fonds? Why do you recomend them?

    • Harald Baldr

      VOO is an index fund that tracks the S&P 500. In short you get a piece of the 500 biggest companies in America. Over time this is the safest strategy for people who do not want to pay much attention or learn about investing.

      Brk-B is the ticker for Warren Buffet’s company. It’s a conglomerate that owns many companies. His returns are pretty much unrivaled over time and it’s another safe-haven investment for people who want above average returns without paying much attention to markets.

      Soo VOO is a fund wheras Brk-b is actually a company.

  • Dan

    Great article. Quick question: what´s your stand on stock recommendation services (James Altucher, etc.)? Keep it up, Daniel

    • Thanks Dan.

      I think it’s best not to listen to others when it comes to recommendations as you

      A) have no idea what their true rationale for buying is
      B) feel twice as bad when you lose.

      At least when it was your own reasoning and research that lead you to buy you can take wisdom from the experience. Learn, move on and grow smarter. Just gambling on other people’s recommendations won’t really teach you anything you can use in the future.

      The times I’ve intentionally or unwittingly allowed myself to be strongly influenced by some article or stock-picker in the past i’ve gotten burnt. Sure that happens when I listen to myself too but that is far preferable.

      So although i’ll write about stocks here that I like and sometimes buy, that is not some endorsement. I’m simply trying to show people that you CAN do this on your own and don’t need to fall into the hands of the mutual fund industry. Hope this helps 😉

  • Danny Plays777

    Harald, recently got some new skills and will soon need a place to put a little money as my lifestlye is dirt-cheap as a result of being poor and happy for a long time. How would i go about buying say 10 stocks in Brk-b?

    • Ask your bank if you can buy stocks through their website. Through most banks you can. If not, then sign up with someone who offers access to the NYSE like Interactive Brokers.

      Then you simply put in a buy order for Brk-B.

  • Peter Larsen

    So Deutche Bank is a really bargain these days, right

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