investing in the stock market 101

Stocks and funds...

This is going to be one of my series of articles/blogs where I will go through Investing in the stock market, and mostly how to invest with the best possible strategies. 

In this particular article I am going to write about the basics about stocks, index funds and long-term investing.  

First let’s break down the obvious. A stock (easily said) is a security that represents the ownership of a fraction of a corporation. Now there are a vary of different stocks, like common stock, large cap stock, growth stock, domestic stock and so on. 

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now, the first rule you should go by if you want to invest in the stock market is… 

“Time in the market, always beats Timing the market” –  Keith Banks

What this essentially means is that long term investing is better and more profitable than short term investing. It is said that over 95 percent of day traders (Short term investors) lose money in the end. This is merely because they try to time the market perfectly for a good ROI (return on investment). But since no one knows where the stock is going to go (at least regular people) then you are essentially gambling with your money and hoping for the stock price to go up. 

It is far better to invest for the long run because you will probably get an essential ROI on your money, if you choose the right companies to invest in. Moreover, if you choose to invest in the long run, you will also be paid every time there is a dividend payment from the company, that is if you invest in companies like McDonalds, JP Morgan, Coca-Cola etc. Which pays a good dividend per stock. 

now if you invest in stocks for the long run, then you should invest in those stocks that are stable, adaptable for good growth and pays a good dividend. what this means is that you should be looking for growth stocks like apple, berkshire, facebook (meta platforms) etc. or dividend stocks like mcdonalds, jp morgan, cola, pfizer and so on. (a dividend are regular payments of profits made to investors who own a company’s stock, dividends are basically payments a company makes to share profits with stockholders). moreover, when you invest, you should consider investing in multiple fields. this is mostly for security of your money, which means if per say the whole medical field goes red, then your other stocks in other fields should still be fine. basically, diversify where you invest. 

An example of this would be 10% in tech stocks (Apple, Microsoft etc.) 10% in medical stocks (Pfizer, Johnson & Johnson.) 10% in Energy stocks, 10% in dividend stocks, 10% in environment stocks and so on. Again, this kind of diversifying would make your investments more secure. But either way you should be in it for the long run. Don’t be so concerned if your investment goes red for a few months, if you have picked a solid company which is going to be in the market for a while it will most likely bounce back up and give you a positive ROI. 

the safe route. 

If you find picking stocks for yourself risky and unsure, then it’s probably better to put your money in an index fund. What is an index fund, you may ask. An index fund is a fund that invest in multiple stocks, meaning diversifying your money into a hundred or even thousands of stocks. So, if one company stock price falls, then that does not mean the index fund prize goes down because the fund is so diversified.  

The only downside is that you probably won’t potentially get as big of an ROI as if you would invest in a singular stock. But it is still an amazing investment opportunity if you only wish to invest and not really learn or keep watch of the stock market. As Warren Buffet said, “If you want to invest in the stock market but have no essential knowledge of it, then you should put your money in an index fund, the S&P 500 would probably be best, and don’t look at the account for 30 years.” Which Buffet said at a Berkshire Hathaway conference. 

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The reason that makes index fund so great for investing in the long run is not only because it is so diversified making it safer than a singular stock, but also because of what Einstein called the 8th wonder of the world “Compound Interest”. The math behind it is quite simple, if you invest 1000$ in for say the S&P 500 which gives an average return of 10% every year, then the first year you would have 1100$ and after 10 years you would have 234,243.90$ and that’s not all, after 20 years you would have 809,025.94$, and after 30 years you would have 2,299,862.52$.

Here’s the original math behind it. CI = P( 1 + r/100)n – P. So only after 30 years you would have over two million dollars, which is insane because you would in that time only have invested 372 thousand dollars which means you would have made just shy of two million dollars of your investment. 

Now, if you want to get the highest ROI as possible in the shortest time frame as possible, then you should go with growth stocks and educate yourself about the market and the more solid corporations. But if you want to take the safe route, then index fund is probably the way to go. Personally, I invest in both stocks and index funds.  

But always remember that investing based of emotion is a death sentence. Keep calm and always invest without emotion, only education and logic. 

If you are looking for a book to educate yourself on Investing than I would suggest, The Intelligent Investor by Benjamin Graham. The reason I would suggest this book is because the book offers sound advice on investing from a trustworthy source – Benjamin Graham, an experienced investor who flourished after the financial crash of 1929. Having learned from his own mistakes, the author lays out exactly what it takes to become a successful investor in any environment. 

You can get “The intelligent Investor” by clicking on this link…

(Disclaimer: I am not a financial advisor, just an experienced investor.)