“The Stock Market Game is important. It gives students a real-life connection to economics instead of being in a textbook all the time” – David Dyer
The Wit And Wisdom Of Wall Street by Bob Thomas
The stock market is dangerous…if you don’t know what you’re doing. Thankfully, there are books and guides to help. Similar to driving, all you need is a “GPS” to be successful in doing anything in life. This book guided me to become a better investor with it’s advise.
A few years back, I looked into the stock market and heard some disheartening words of advice. I looked at who I was getting the advice from. And it usually came from people who weren’t doing well in the stock market. So, of course, their direction wasn’t positive. In order to do well, you must look to those who have reached where you want to reach and go beyond.
The Wit and Wisdom of Wall Street is a collection of saying and words of guidance for those looking to invest in the stock market. And unlike those of whom I sought and got advice from, these sayings are from those who have been successful in the stock market. People such as Warren Buffet, his mentor Benjamin Graham (also the author of The Intelligent Investor), Baron Rothschild, and Peter Lynch (author of Beating The Street) just to name a few, have all been compiled by Bob Thomas for your gain. In this article, here are 5 lessons that taught me how to be a wise and profitable stock investor.
1.Be Greedy and Fearful
Be greedy when others are fearful and fearful the others are greedy – Warren Buffett
I start this list with Warren Buffett, who as of the time of this writing is worth 64.3 BILLION because he is the most successful investor of our time. This first enlightenment goes against the norms…..(actually, most of these tips do). Wall Street is only motivated by 2 emotions: fear and greed.
Use them to your advantage. Don’t be controlled by them now that you know. Most people fear a market’s decline, this is when you should be greedy. Most are greedy when the market rises, this when you should be fearful and look at your investments more closely.
Warren Buffett also said:
“When hamburgers go down in price, we sing the ‘Hallelujah Choir’ in the Buffett household; when hamburgers go up, we weep. For most people, it’s the same way with everything in life – except stocks.”
2. Don’t Check The Stocks
If you’re compulsively checking up on the prices of your investments, you’re not only hurting your financial returns, you’re unnecessarily taking precious time away from the rest of your life – Jason Zweig
A watched stock never boils. You must avoid the roller coaster of worry by not checking the prices every day. The stocks is a long term game.
Ask yourself, “How often do I check the value of my home?” It’s the same way with stocks! Those who win in investing hold on to their investments for years at a time. Warren Buffett says his favorite time to hold a stock is forever and that if you are not comfortable owning a stock for 10 years, then you shouldn’t own it for 10 minutes.
If you must check them, never check stock prices on Friday because it will spoil your weekend. And never make a decision to sell on Sunday morning. I did these things and from experience, I can say the results felt like someone hit me with a bat while my head was turned. I lost sleep, became overly anxious, and emotionally stressed.
Also, avoid fad industries like the plague! They don’t last. Buy stocks that last so you can hold tight and long term to maximize gains. Author and investor, Jesse Livermore admits, “It was never my thinking that made me money – it was my sitting.”
3. The Magic of Compound Interest
I don’t know what the 7 wonders of the world are, but I do know the 8th – compound interest – Baron Rothschild
And David Dreman advised, “Forget about trying to time the market – let compounding go to work for you.”
Here how it works! If you received $1000 a day for 30 days, you would end up with $30,000. Sounds good, right? Now, on the other hand with compound interest, if you received 1 penny on the first day, then double the previous day’s total the second day and so on for the entire 30 days, you would end up with an astonishing $10,737,418.23!! Halfway in the 30 days, you would only have $327.67, but it picks up in the second half.
Reinvest all dividends, interest, and capital gain distributions. Make your soldiers work for you by recruiting more soldiers. Easy!
4. A Company vs. A Stock
It’s all about how you tune your perspective. Most people see a stock, but you must see a company. Watch the company, not the stock price. Like the long-time friend of Warren Buffett, William Ruane said.
“Look at the stock as a business, instead of a piece of paper that moves up and down”
The out-of-favor stock of a good company will eventually come back strong. This happens because the company’s earning estimates tend to impact it’s stock more dramatically than actual earnings results. Remember, the market goes on two mentions: fear and greed. People react to things that they think might happen. Most times it doesn’t.
This chart shows the relationship of stock price to the P/E of Allegiant Travel from Peter Lynch. P/E is the relationship of share price to per-share earnings. You take the stock price and divide it by its earnings to get the P/E. Once you know a company’s P/E, you can have an idea of where the company’s stock is headed. The better a company does, the better the stock tends to do. This is because a stock is a reflection of people who invest in it. Usually, when people don’t like a stock’s earnings, they sell and the price drops and vice versa.
So look at the business, not the price. If the business does well, people will invest, and the price will go up. But if you see the company falling, don’t be loyal to it, save that for your football team.
5. When To Sell?
So you held onto it for a year or two and you think you should sell. Wrong! Peter Lynch suggests, “Sell for a reason, not just because the stock did well for 1 year – never jump from a moving train”
By selling stock to avoid pain – you can miss the next gain. A good reason to sell is if it’s earnings are falling or the company missed its mark on their earnings estimate. Because if they did it once, they’ll miss it again.
A bull market is when the majority of the market does extremely awesome. And a bear market is when the market is doing horribly. When the stock market makes the front page of the newspapers and everybody is talking stocks – the bull market is just about over. Sell when other buy. As I explained, stocks are a result of the actions of people. When more people buy the stock goes higher. So when a lot of people buy, it’s usually hitting its peak, and that’s a good notion to sell.
Like Jim Roger, author and investor, states.
“One of the best rules anyone can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people always have to be playing – they always have to be doing something.”
Basically, the best thing to do in the stock market is to do the opposite of the majority. Research the company you want to invest in. Make sure it’s profitable, hold on to it, and reinvest money in it to build compound interest. There are many ways to ensure that a company is profitable but that a topic of a later article.
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