Warren Edward Buffett (81) is an American investor, industrialist and philanthropist. He is widely regarded as one of the most successful investors in the world and is currently the 3rd richest person in the world!!
If you wanted to buy just 1 Share in his company’s stock (Berkshire Hathaway), it would set you back a cool $119,005 today!
Even as a child, Buffett displayed an interest in making and saving money. He went door to door selling chewing gum, soda, or weekly magazines. For a while, he worked in his grandfather’s grocery store.
While still in high school, he carried out several successful money-making ideas: delivering newspapers, selling golfballs and stamps, and detailing cars, among them. Filing his first income tax return in 1944, Buffett took a $35 deduction for the use of his bicycle and watch on his paper route.
The Octogenarian’s interest in the stock market and investing also dated to his childhood, to the days he spent in the customers’ lounge of a regional stock brokerage near the office of his father’s own brokerage company.
On a trip to New York at the age of ten, he made a point to visit the New York Stock Exchange (NYSE). At the age of 11, he bought 3 shares of Cities Services for himself, and 3 for his sister.
While in high school he invested in a business owned by his father and bought a farm worked by a tenant farmer. By the time he finished college, Buffett had accumulated more than $90,000 in savings.
His fortune is estimated at around $42.2 Billion today!
So why do so many people feel that the stock market is risky and feel so afraid of losing money that they won’t even take the time to investigate this very lucrative money making opportunity?
I suppose the answer to that question lies within the perception of the reader, but here’s my take on it…
The first time I became aware of buying stocks and shares was in November 1984 when more than 50% of British Telecom shares were sold to the general public. My wise mother was one of the first in the queue to get some shares which she later passed on to her grandchildren. (I can well remember the day I sold my children’s shares in order to pay a bill before the electricity was disconnected!!)
Those shares bought for £1.30 are now trading at £29.83. If dividends were reinvested, then you can imagine what a tidy profit would have been available in my sons’ inheritance pot today!!
I was first attracted to Stock Market Investing after attending a Tony Robbins Wealth Mastery Event in 2005 and, realising the potential for big profits through Options Trading alone, I invested a tidy sum in an intensive training course with two of the world’s top traders who I later realised were teaching very lucrative but very risky strategies indeed. The cost of the course (£3,500) would have been a nice wee ‘investment pot’ to get me started back then, but I knew that without the right knowledge, I could easily become unstuck.
Over the past 10 years I have made a lot of money in property and a large proportion of that came after I invested in an education course run by a well known property training company whose top trainers, The Secret Millionaire’s Gill Fielding and Kevin Green and the very well known motivational speaker and property expert, Dr Rohan Weerasinghe, taught me a lot more about property investing than I already knew. The cost of that course (£20,000) has been returned to me many times over through deals that I did after learning some of the secrets to making money in property and I regard that expense as one of the best investments I have made to date.
But what’s that got to do with the stock market I hear you say!! Well… as rumours began to filter through about trouble in the banking sector at the start of 2008, I quickly realised that the property market was about to change dramatically. This would have been fine, had I not been in the middle of negotiations with a large Scottish bank who were about to provide funding for a multi-million pound property development deal that would have put me in a very comfortable position financially, had they not reneged on the deal!
So it was ‘back to the drawing board’ for me, as I realised that a huge door was closing on my property business as moneyflow (not cashflow) began to dry up.
Having dipped my toe in the water with stocks back in 2005, I knew there was potential to make money in this market but I was nervous. Although I had experienced a little success with trading options, I knew it was risky and even though I invested £4000 in a personal ‘coach’… on the one occasion when I got stuck, my attempts to contact my mentor failed and I panicked!! Thankfully, I didn’t lose a lot of money… only a few hundred pounds… but it was enough to frighten me off for a while.
During a discussion with another investor, it became obvious that I could use the same strategies I had used in property to make good, consistent profits in the stock market… WITHOUT the risk, and it wouldn’t take a lot of capital to get started!!
As with any investment strategy, it pays to get good advice and that’s what I did in 2009. Since then, I’ve gone on to further my own understanding of exactly how the markets work and have introduced my learnings to others.
But just how do the markets work, how do market makers make their money, what effect do sudden changes in world politics, weather cycles, natural disasters, major accidents (the BP oil spill)… how do these things impact the markets and what immediate and long-term effect can they have on stock prices and profits.
Companies that trade on the stock market do so in order to raise capital for Research and Development, expansion etc., and so the large corporations who float their companies on the stock exchanges throughout the world, NEED investment money from the general public in order to grow. In return, they offer the investor a share in the company’s profits which, as we all know, can go down as well as up. This is how money makes the world go around!!
Most investors buy stock in a company through a stockbroker. The ‘broker’ makes his money from charging the investor a fee when buying AND selling shares on the investors behalf, irrespective of whether the investor makes a profit or not.
It seems that a lot of investors ASSUME that the broker knows everything about the stock market and since they also ASSUME that the price of the stock will always go up, those assumptions create a very risky environment indeed.
Let me use a little analogy here. You wouldn’t dream of buying a car and setting off on a long journey without having first learned how to drive safely and passing a driving test, would you? In fact, it would be illegal in this country to do so!! Once you invest in a car, which is a depreciating asset, you will become familiar with that vehicle. You may not be a mechanic, but you will certainly have to visit one a few times during the lifetime of ownership to keep the car working properly.
And yet, here’s what happens in the stock market today… investors will ‘take a punt’ on a ‘hot tip’ from a friend or from an article that they read in the FT. In many instances, people will hand over their hard earned cash (or sometimes inherited wealth) to a broker to invest on their behalf on the ASSUMPTION that the broker knows all about the markets. WARNING: Stockbrokers are SALESMEN and we all know that salesmen have targets to meet, so do you think that the broker will have your interests at heart?
So, with little knowledge and little or no experience, you suddenly find yourself the proud owner of a Share Certificate… and then what? Do you have a plan? When is the right time to BUY? When is the right time to SELL? Can you trade options with your chosen stock? When will you cash in your Certificate? What happens when the stock moves down? Do you know what will happen to your investment if the company goes out of business? To buy low and sell high is the common intention with stock market investment, and anyone who follows Warren Buffet knows that this is his strategy (Buy and Hold)
I think I can safely say that most investors have no idea about any of the above and yet they leave their financial well being in the hands of someone they will probably never meet face to face and will no doubt face the wrath of the family members if and when they lose money. Sadly, it’s not uncommon for owners of substantial losses to commit suicide rather than admit their mistake and seek help or try again!!
But as with any ‘market’ there are winners and losers. The winners know exactly when to get in and when to get out. They know which companies are the safest to invest in and they get to know the heartbeat of that company. They know how often dividends will be paid out and if they’re smart, they will reinvest those dividends plus any profits (the power of compounding!). They choose good quality companies who have a strong track record in the markets and they look for signals that will warn them ahead of time, that they may need to get out of that stock or find a way to protect their investment. They will generally stay with that company or companies for a number of years and will take lots of little profits as the prices fluctuate, thereby ensuring more gains than losses and a larger profit share over time than if they just buy and hold.
The big winners in the stock market, treat their investments as a business. They have targets, timescales, trading plans, exit strategies, insurance against loss, fees and overheads, tax mitigation and so on.
So, if you are considering stock market investing as a potential income stream – and I sincerely hope that you do – then make sure you get the right information… the right training… BEFORE you start off on YOUR journey to financial freedom.
The stock market will be around for a long time… prices will go down as well as up and it will even go sideways for a time.. and you can take advantage of the market, in whichever direction it goes. There is nothing to fear, as long as you know what drives the markets and you learn how to maneuver your way through this financial goldmine… safely.
“The basic ideas of investing are to look at stocks as BUSINESS, use the market’s fluctuations to your advantage, and seek a margin of safety. A hundred years from now, they will still be the cornerstones of investing” Warren Buffet