Why The Stock Market?

We are past the market meltdown of 2009 and things are looking up for investors once again. With the new financial regulation being pushed through congress one can safely start thinking about getting back into the game.

The potential for higher returns are far better from the stock market than from many of the safe investments available. $1 wisely invested in the stock market can bring many multiples in returns when compared to leaving money in a bank (where interest can be shockingly low).

Many people believe that the stock market is too risky – yes, there is an element of risk, and yes you could potentially lose your capital…but investors who take the time to educate themselves and fine-tune their investment skills have a far better chance of getting much better returns on their capital than those who opt for 100% safe investments. It’s also important to note that often, when one leaves their money in a bank, the actual returns from the interest do not even cover the cost of inflation – in some cases it’s possible to actually lose money in real terms because inflation is higher than the general interest received.

In fact, investing in the stock market offers something for every type of investor, from risk averse to those who are willing to take on calculated risks in order to achieve higher returns. There are also scores of investment funds where the investor does not need to know anything about stock markets or investment – the fund manager invests on your behalf, usually in return for a fee. There is of course no guarantee that a fund will deliver outstanding performance (or will not incur a loss) but if anyone ought to know about beating the market it would be fund managers.

Having said all this there are also risks inherent with stock market investment. When you deposit your money in a bank your capital is not really at risk – with stock market investment you run the risk of losing all the money that you invest if the stock goes bust. Also, while many analysts look at past performance of companies and markets we all know of the disclaimer that says “the past is not necessarily a guide to future performance” – in other words what has brought success before may not always bring success in the future. The market can be a real enigma at times.


Why The Smaller Investor Has Advantages Over Huge Multinational Funds When It Comes To Scooping Up Higher Investment Returns

You would be forgiven in thinking that with all the professional managers, funds and resources at their disposal that investment funds would win head over heels against the smaller investor like you and I. In fact this is not at all the case – smaller investors have several advantages over the big funds and have every chance of beating their returns on investments. Here’s why:

The individual investor does not have to invest millions and so they can invest in small caps (tiny growth companies) that have the potential to grow many times over. These stocks are typically far too illiquid for funds to enter.
The smaller investor can get in and out of a stock with the simple click of a mouse or a phone call (and get roughly the same sale price per share). The larger funds have to gradually sell their holdings in a company (they may have millions of shares to offload – not an easy or quick thing to achieve).
Individual investors can effectively trade positions for small gains – something that larger funds simply do not have the ability to do.

On top of this, the internet has more or less facilitated the smaller investor to have access to the same information at the same time as the big city fund managers. Arguably, the individual investor also has the added advantage of speed – a fund manager may have to get approval in order to buy into a company (not a case for the individual investor) and cannot take advantage of special situations (such as buying on breaking news and so on).

Remember however, if you really want to become a “professional investor” – one who is savvy enough to beat the market and essentially make a living from investments then you need to learn as much as you can about how the market works, how to analyze companies, the part psychology plays in driving markets and how to create an investment/trading system that’s right for you. Even the masters of investing such as Warren Buffet and Jim Slater all started from scratch. Warren Buffet once did not know what the PE of a company meant. Jim Slater once did now know how to read the balance sheet of a company. They educated themselves and discovered how to pick stocks that have excellent potential – you could be doing the same. The first step to investment is to invest in yourself and your education. To offer an overused yet apt phrase – KNOWLEDGE IS POWER!

Come back next time for more tips. Tricks and techniques to assist you in Living the Champagne Life on a Beer Budget. Remember we're all in this together and I'm pulling for you.



Mahalo.





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