Remember the quip: “Money Don’t Grow on Trees”? or “Money Don’t Grow like grass”? I guess trees were not really created to sprout money as leaves, eh? But did you know that money actually grow like trees? If you don’t, then, I’ve got news for you.
Let’s see how you grow a tree.
1. You grow a tree by first turning a seed into a seedling. So you start pooling that allocated money that you would have otherwise unwisely spent (remember my 2nd blog: “INVESTING WITHOUT CAPITAL?”) and put them into your account with your broker.
2. You plant the seedling – by buying the shares of stocks of the companies that you have studied.
3. You water the tree – by sprinkling it with additional allocations from your monthly income which you can use to buy additional stocks.
4. You fertilize the tree – by plowing back the cash and stock dividends which your shares have earned making sure that whatever earnings they make will be compounded.
5. To make sure that the tree grows straight and tall, you prune the tree – by rebalancing your portfolio always seeing to it that you are following a pre-determined stocks allocation.
6. Then you give it time to grow – by choosing a longer investing horizon.
From a frail and delicate seedling, a tree can grow into a sturdy and monstrous timber that can withstand the harshest of elements, prolonged droughts, floods, typhoons and the strongest of winds.
Those measly, miserable, little savings, wisely invested, regularly added even with minute additional savings, continuously compounded with earnings, dividends and interests, can grow into a big fortune that will feed by itself and withstand the worst of economic disasters – pretty much like the frail seedling that grew into a humongous tree.
All those water, fertilizers and pruning however will all be wasted if you didn’t give your tree enough time to get big. This is the reason why I thought it would be better if you consider the money that you are going to invest as part of your expense allocation. The money that you are planting here should better be the money that you will not immediately need.
Invested money can sometimes hit a jackpot and grow exponentially in a very short period of time. But in investing you cannot depend solely on luck. You have to give your analyses, strategies and trading systems a chance to work. The stock market by its very nature is rather skittish. It goes up and down wildly with the slightest of provocations. You don’t want some unforeseen circumstances forcing you to liquidate your shares when they have just taken a beating.
Ipil, (Leucaena glauca Linn.) is the only tree that I know that can grow quickly. It is also probably the thinnest and the most brittle of all the trees. I would rather that the companies I invested in do not break into halves or lose all their limbs just because somebody sneezed too close to them or that there was a news item of an impending DRIZZLE!
What many, if not most, investors would like to do is to wait until their investment have reached their fullest potential before they sell it (to a certain extent, I think, maybe even “Day Traders” feel that way). That, however, is just a dream to many. I mean, how often do you hear that analysts’ expectations are not met, or are exceeded by actual events? So, many of them end up selling their stocks either “too early” or “too late”.
It would be best then if the investors, like the farmers who plant those stock market shares, would know when their fruit bearing trees are about ready for the picking. The lesser you engage in the guessing game, the better it will be.
Besides, all you have to do is to look at a 5year or a 10 year chart to realize that, while a lot of people are losing money (others are even jumping out of tall buildings because of it) during economic upheavals, stock prices always go up in the long run – usually, surpassing even the biggest drops in economic meltdowns. Now, let me qualify that I was referring to a market chart as opposed to stock charts. (There are stocks that mimic the whole market but there are more stocks that tell a different story.)
I am not saying here that you can be careless in choosing the stocks to invest in. Carelessness, often, causes disasters. That’s the reason why I want everybody to realize that individual stocks make their own charts. What I am saying is this: no matter how financially wanting you are, if you can allocate a small amount of money out of your monthly expense, and you can treat that money as if you have already lost it. Yet, you take the effort to learn how to invest them, then, you can grow that same money just like the way you can grow a tree.
Just be careful not to fall into the temptation of cashing in on that tree prematurely.
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