Why Stocks?

You are able to set aside a certain amount of money and you know you have to put it to good use if you expect to live a comfortable life in the future. Whatever is the amount, you have to make that money start making more money. The sooner, the better. Obviously, to do that, you have to invest it. The question is, where?

The future that I am referring to here moves backward from the time when you finally retire to the time when you are just simply tired of the rat race. The point in your life when you believe you’ve already worked hard enough and should be able to afford almost anything you wish to have – realistically – or to continue to subsist contentedly for as long as you live without having to work again. How chronologically young or old you happen to be by then does not matter.

Unlike the others, you have enough brains to think that no matter how big or small your present income is, you cannot tell what tomorrow brings. And you have to be prepared for it. Ok, now is the time to invest.

Why put it in stocks? Why not the usual passenger-jeep (if you are a Filipino), tricycle, small store, etc. If you are a bit more sophisticated than that, why not bonds, pension funds, treasury bills, real estate ? I wish everybody knows that savings and time-deposits cannot be in this category at the moment.

Go to other websites, buy books on investing, and the experts who graduated from Ivy League schools with MBAs and multiple business degrees who authored those sites and books would tell you why stocks are the superior investing tools. They can show you graphs, they can make complicated mathematical computations and they can present models based on historical figures that will all point to one thing – stocks is the superior investing vehicle.

If you look at the top of this page you will see a title that says “Stock Market 0.101”. Yep, the “0.” has to be there. It’s not a typo. It’s my way of telling you guys and the others who happen to read this blog that this page is not about your usual academic discussion of stock market investing. Those sites are for people who are comfortable with words like: coefficient, variance and co-variance, efficient frontier, dividend yield and true blue (real) Greek symbols; and people who asks you to project the price of a certain stock to the future, determine the risk-free rate, estimate the “g” and compute the present value of that particular issue.

I mean, gee! WHEW!! Sure, high school (secondary) students are already familiar with some of those terms nowadays. But their counterparts in the not so distant past were deemed incapable of digesting such alien words and therefore spared of early contamination.

The thing is the secondary students of today are not the ones saddled with the job of making both ends meet for the family. It is the job of the guys and gals who did not have an early exposure to those contaminants, who are even wondering what on earth does a Ven Diagram do.

See, those books and sites are good. Many of them are written by people with Nobel Prize on business or economics plus all sorts of recognitions and awards and I envy them for the awards. But many of their works are beyond the grasp of ordinary mortals who, more than anyone, need to learn how to invest their hard earned money. Thus, this blog called “Stock Market 0.101”.

How will this blog justify the recommendation to invest in stocks, then? By citing real experiences, is one. Okay, you don’t know me, my name is not even anywhere in this page, how can you be sure that what I refer to as real experience is true and real? How can you believe something that you don’t know for sure is real?

First, you don’t have to believe me. My job here is to entice as many uninitiated ordinary folks to check out the best possible sources of extraordinary additional income. Arouse enough curiosity for them to take the challenge of comprehending the seemingly incomprehensible jargon on stock market investing, and see for themselves if the risks and benefits that are inherent in this business are acceptable to them.

The second proof, that you can believe that the experience I am going to cite here is real, is limited to the immediately preceding story about my own initial experience in the securities market. Well, nobody is really absolutely anonymous in the internet so you can sue me for proofs that the preceding story is true. But be prepared to lose the case, and pay for damages, because I can produce documents that would show that it really happened.

Why stocks? Here’s the story: Back in June or July of 2006, about a year before the “Subprime Mess” started rattling the stock market, a friend and I decided to try investing. We put in a certain amount of money to serve as my “training fund.” I looked for an online brokerage house, deposited the money in our account and I started trading.

Before doing this, I read as many books on stock market investing that I can lay my hands on and became amazed by the way each and every author seem to be contradicting the other authors on the best way to invest. Day Trading, Swing Trading, Momentum Trading, Value Investing, etc., are all nothing less than the “best” strategies. How can all of them be the “best” way of making money thru stocks? If all is best, which one is better?

Anyway, armed with the knowledge that the experts seldom agree on anything, (based on the said books that I read) I went to select my own stocks and traded them online myself. One year and four months later, my training fund has grown by more than Fifty Percent (50%)! That was despite the ripple effect of the sudden 4% drop of the Chinese Stock Exchange in February 2007 (which brought down with it not just the Asian markets but U.S. and European markets as well) and the risk aversion that was beginning to plague the world markets due to the unfolding “Subprime Mess” which started sometime in August of the same year.

Incredible? Nope. Actually, I understated that income. I can show documents that can prove that my training fund earned a lot more than just 50%. But I don’t want to give the impression there’s easy money in the capital market. Or, that I am a superhuman trader with a Midas touch. I can’t even claim that I already know 25% of everything there is to learn about investing.

So, how do we account for that more than fifty percent (50%) growth of my training fund in such short a time?

Click for another window of your search engine, key in the name “Ron Nathan” choose the one associated with PDI (Philippine Daily Inquirer), check out his column called “Mr. Bearbull”. In one of his columns Mr. Nathan wrote something like this: “the market (Philippines Stock Exchange) has given so much earning over the past year that even the most stupid investor who went in would look brilliant.”

Instances like those in stock market investing would more than make up for short term losses in the securities market – if you know what you are doing, that is. Instances like those are the reasons why you should be there.

What about the opposite instances of those? When the market is losing rather than earning you money?

Well, you have to come back here for that discussion.

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