You Need to Start Investing NOW! Pt II
Updated: Aug 16, 2020
In part one of this blog we touched why you should start investing, how investing allows you to participate in the success of companies you're familiar with, and the beauty of owning a business without running a business. In part two we touch on why some people have avoided investing in the stock market. We tackle these issues head on including the risk of losing money. To be an investor, and a good investor - which I'm sure you're capable of - you need to have all the information, the good and the bad..
So many people go their entire lives not investing because they believe the stock market is a scam, which is the mindset of someone who just doesn't understand how it works, and to be honest with you, that is by design. Yes, it's by design that you weren't taught about how the stock market actually functions, but that's another topic for another day, for now let's address the stock market is a scam issue.
The Stock Market is a Scam.
This mindset plagues a lot of people, According to Statista only 55% of American adults are investing, and of those people that are not investing, some have been told that the stock market is rigged or it's a scam.
One part of that last sentence is absolutely correct, the stock market is rigged. It's rigged for investors with patience to win in the end. It's rigged to take the money of anyone buying without an understanding of what they're buying and why they're buying it. It's rigged to leave anyone who believes they will get in, get out, and get rich quickly with nothing. I cannot deny it, it's definitely rigged. But I will argue against the stock market being a scam where only the rich guys win.
In part one I mentioned McDonalds and Johnson & Johnson, are those companies scams? Nike (NKE), Clorox (CLX), General Mills (GIS) the cereal manufacturer, Campbell the soup company (CPB), Dick's Sporting Goods (DKS), Target (TGT), Walmart (WMT), United Airlines (UAL), JetBlue (JBLU), Delta (DAL), Facebook (FB), Google (GOOGL), Netflix (NFLX), Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), these are all publicly traded companies. To say the stock market is a scam is to say the products of the stock market, the companies I've just mentioned are a scam, and you're smart enough to know they are not. You wouldn't buy scammy shoes to put on your feet, or shop at a scammy store, or fly a scammy airline would you? If your answer is no, then you agree with me that Nike,Target, and JetBlue aren't running scams.
But from speaking to new investors about why they didn't invest earlier we usually hear the same story. A friend, cousin, uncle, or parent got a stock tip, bought in - without doing any other research - the stock price went down, and they lost their money, but the person that gave them the tip made out very well from the investment. This story is centuries old, and the last time I heard it, won't be the last time I hear it. It's unfortunate that it happens, but remember what I stated earlier, the market is rigged to take the money of anyone buying without an understanding of what they're buying and why they're buying it. A stock tip does not qualify as understanding what you're buying and why you're buying it.
Something else we've gathered from speaking to people that have had bad experiences in the market, their market outcomes had a lot to do with their mindset around money.
We've listened to people who were used to paying top dollar for everything. Getting the most expensive watch, car, wardrobe, house, meal, drink, et cetera, because they could.
That mindset is counterintuitive in investing.
Investors don't make money when they purchase shares of a company for $15 billion if the company is only worth $10 billion. Investors make money when they find a company worth $15 billion, but the market is selling the company for $10 billion. That $5 billion difference between the price the market is currently selling the investment for and what an investor believes the investment is worth is where the money is made.
For an investor to have success investing they have to be bargain hunters. Whether they decide to invest in value companies or high growth companies, they have to search for the bargain in order to make money. The same thing goes for real estate, buying a house for top dollar is an unwise move for a real estate investor. Buying high for the sake of buying high doesn't work in investing.
I hope this does a little bit to clear up the stock market is a scam notion. How can it be a scam when some of the largest companies in the world are a part of it? If an investor is constantly losing money and seeing more loses than gains over a long period of time, it's not because the stock market is a scam, it's because they aren't investing correctly, and are overpaying for their investments.
The Fear of Losing
Another reason many people avoid the markets is because they're scared of losing money. I was up front with you on the markets being rigged, and I'll be up front with you here, if you invest, there will be a time when you will lose money. There is no way to sugarcoat that.
The greatest investors in the world, the billionaire money managers that are featured on CNBC and Fox Business have all lost money investing at some point, and these are the worlds best and brightest investing minds. Losses happen, and this is why it is important when investing to think long term.
On the bright side, every dollar lost is a lesson learned in investing. It's a lesson on what to look out for on the next investment.
If we buy McDonalds at a value price with plans to hold it long term, we increase our chances of making a very good return on our money and decrease our chances of losing money.
McDonald's may have a rough quarter or a rough year, but it will likely be here long after you and I are gone, and it will likely be worth more money ten years from now than it is today.
There is Nothing to Fear but Fear Itself
Today investing is easier than it's ever been. More importantly it's easier to start small than it's ever been. I started investing when I had to call a broker, listen to that broker chuckle at the few dollars I had to buy the few shares of stock I wanted, and then pay that broker's commission for taking my order.
It's so much easier today. First, everything is online, and setting up a trading account is as easy as filling out a job application. You can log in to your trading account, deposit money, withdraw money, buy stocks and sell stocks without speaking to anyone at all.
Also trading apps like Robinhood and WeBull initiated the zero-commission trading phenomenon, which eventually caught fire and forced larger investment houses to adopt a zero-commission fee structure. Now investing is easy and almost free, in addition some sites even allow investors to buy fractional shares. Now investors don't have to buy a full share of stock outright, they can buy a fraction of a share, and still enjoy in the success of that company to the degree of the ownership stake they have.
Why Stocks (and ETFs Sometimes)?
There are enough people yelling at you in those four minute YouTube commercials about the best, easiest, quickest way to get rich, I want to avoid that crowd, but still explain to you why The Seville Report is focused on stocks/equity.
First and foremost stocks are incredibly easy to buy and sell. Open an app, enter the stock symbol, enter the number of shares I want, hit the buy button and I'm done. If I need to know the value of my investment I can easily find it. When I'm ready to sell the stock it's just as easy; open the app, enter the symbol, the amount of shares I want to sell, hit the sell button and I'm done. I just can't beat the simplicity of conducting a stock transaction compared to other investments.
Also stocks provide the ability to gain exposure to a multitude of markets. For example a stock in a Real Estate Investment Trust (REIT) can provide exposure to the real estate markets. A REIT that pays a monthly dividend can give me the sense of collecting rent, without having to secure a mortgage, locate a property, and qualify tenants.
If I foresee something great happening that will positively impact a specific industry, I can buy an ETF and gain exposure to that industry. An ETF like the SPDR S&P 500 Trust ETF (SPY) tracks the S&P500, and this one investment instrument provides investors exposure to the best companies in the United States.
Also, I find the process of researching publicly traded companies easier than researching most other types of investments. I also enjoy that as long as I have an internet connection I can research a company from anywhere, and there's the euphoric feeling I get when I find an undervalued gem. Life is hard, so I try take the easy way when I can, and stock investing is just easy to me.
No matter what you decide to invest in, it doesn't matter to me, I just want you to invest. We can all use a money multiplier, something that grows the money we have, while we're trying to make more money, and there is no easier way to do that than by investing.
A case for investing in stocks is that investing in stocks gives you the opportunity to own a business without the huge cash outlay needed to start a business. Also, owning stocks allows you to participate in the success of companies you know and whose products you use.
Remember the stock market is not a scam. Real companies are traded every day in the stock market, companies that you know. Don't fear losing money, because you will eventually take a loss if you're investing, that's in stocks as well as real estate, losses are a part of the territory. But when all is said and done the wins should more than outweigh the losses.
Don't let the process overwhelm you, opening an investment account is like filling out a job application or opening a bank account. Once your account is established you're ready to start funding your account and investing.
If you weren't investing or never thought about investing, I hope that you are seriously considering it after reading this. If you're ever in need of investment ideas, we publish our investment newsletter quarterly, and it can be purchased here. In our newsletter we discuss undervalued opportunities in the market. Good luck, and may your next investment be your best investment.