So, first off…if this is the question you have in your mind, you shouldn’t be saying “invest” but rather gamble. Before you stock market maniacs jump in and eat me alive let me explain. It is different to invest in a company that is in the stock market, registered under NYSE for example, and “invest” simply in the idea of the stock market. Investing in ETF’s ins’t really investing as you are putting money on something that has a trend of different stocks: it’s a collection of stocks.
If your idea of the stock market is you put in money, and that spits out cash for you, you are dead wrong. There are actually a couple ways you can play this game:
- Invest in the long run
- Do short term trades (day trading or swing trading.)
If you are looking to day trade, then again: it is not an investment. An investment is something you put money in, because you believe the company will do well in the earnings, many products will be sold etc. Putting money into a stock, because of some news out there that is pumping it, doesn’t mean you are investing in it – especially if you are planning to make a quick buck and run. I am not hitting on the quick buck game. I actually used to play it also, and made good money in it. But just know that that, isn’t called investing.
Investing could be considered when you find a company that you like, and is having decent earnings but you see a lot of great potential say 10 years down the road. Then you buy a specific amount of shares and keep on buying up, or buy all at once and wait for it to produce. Many times, people will select to invest in IPO’s which basically means those companies that are registering on the stock market for the first time. Others enjoy investing in startups. In fact, most of the quick money has been made (and lost) in biotechs that have some kind of product ready to launch and it gets approvals (from all the regulatory process) so then it sky rockets. Those are the more fast buck type situations you may want to pay attention to, if you are looking to make a quick buck. But again as I said: many people have lost their shirts there, because say some bio product was not approved or was considering harmful for human health etc. So you need to be careful and pay attention to what you are doing.
Having said all this, please do not listen to all the people that say that the stock market is a gamble. It isn’t a gamble if you don’t gamble. So if you are investing in Facebook (example, I don’t own any FB stock) because you believe it is the best social media platform and will be evolving into something much greater in the future, then you are okay to invest in it. But if you are investing in Facebook because you like the color blue, and Facebook has a lot of it on their platform, well…then you probably are going to make a mistake you’ll regret. That is a gamble: putting in your money blindly.
Now, in order for someone to win, someone has to lose. So all the successful people in the stock market, are successful because other people lost (too late on a deal, or sold too early etc.) The point is you need to treat it like a regular business. If you are planning to do the day trades, you need to study the patterns and chart analysis programs that many people offer out there. You will know when a stock has hit an all time high and is ready to take off, or if it’s ready to collapse. On the other hand, if you are an investor, do your homework. Study the company you are planning to invest in, follow up with the earnings reports and make sure it all makes sense. Even call them or meet up with investor representatives. In any case, if you are lazy about this (and many people are) you are setting your self up for disaster.
My opinion would be that you try it out and take it seriously. If you see you make some money, put it back in and keep on working your way through a solid portfolio of stocks. If at some point you’ve lost a good chunk and your gut is telling you that this isn’t for you, then just get out. There is no shame in not knowing how to handle this industry. Same way some people are good in music or some other profession, you can be good or bad at this. In both situations though, you should spend a lot of time doing your homework and making sure you are following all updates.
Hopefully this article is a little bit eye opening for the ones that are more suspicious about this whole stock thing. And hopefully this has given others more confidence in their decision to join or not join this game.