Stock Market (2)

What you have to know about the stock market

Before you invest a single Ron into stocks, you have to be aware – where there is money in play, the charlatans are not far away.

Stock market predictions

Basic rule number one: Nobody, and I mean nobody, no witch, no banker, no horoscope and no website can predict the development of the stock market. If you believe in higher forces who see the future, I recommend to stop reading here and ask them for the 6/49 numbers next sunday.

Stock market returns

While you get almost no interest on your bank-deposit, as my friend Dan is now discovering, the stock market in fact offers sometimes much higher profits of 5, 10 or even 20 percent in a good year.

That said, it’s crucial not to forget, that there is a flipside where investors have to accept losses of the same magnitude, if they underestimate the risk. Who wants a high return has to take a high risk. A riskless investment with high profits is as rare as snow in august or, as they say in Wall Street: ‘There’s no such thing as a free lunch’.

Stock market tips

If you are looking for an easy way to get stock market tips, the internet is full of them. I wouldn’t say these tips are all bogus, some research departments of big banks publish a lot of valuable information, especially company-data on the micro-level or country-data on the macro-level, an investor can use.

But when it comes to hot tips, one should always ask: if that moron has a really hot tip, why doesn’t he just shut up, buy the stock and makes a fortune? Why does he play Mother Theresa and let everybody participate?

The reality is often this: the tip-giver already bought the stock at a low price and is now looking for uninformed investors to buy. If they believe the hot tip and buy the stock, the price is rising and the tip giver can sell with a profit. At the end of the day you are holding a stock , nobody else wants anymore and you make a guaranteed loss. This system, called ‘pump and dump’ goes on for decades, famously operated by the ‘Wolf of Wall Street’, Jordan Belfort, and shown in the movie with Leonardo di Caprio.

I guess, by now you get my point, that it’s best not to trust blindly when it comes to the stock market. I recommend to find good investments for yourself, even if that comes with the price of work. This work is called research and it contains, among other things, the ability to:

  • find the right stock
  • get and process company-data
  • value a stock

It is not a difficult as it sounds – find out why in the next subchapter: http://www.theleader.ro/stock-market-3/

 

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