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 third richest person in the world!!
If you wanted to buy just 1 share of his company’s stock (Berkshire Hathaway), that would set you back a cool $119,005 today!
Even as a child, Buffett showed an interest in making and saving money. He went door to door selling chewing gum, soft drinks or weeklies. He worked for a while in his grandfather’s grocery store.
While still in high school, he pursued several successful money-making ideas: delivering newspapers, selling golf balls and stamps, and detailing cars. When filing his first tax return in 1944, Buffett took a $35 deduction for using his bicycle and watch on his newspaper route.
The 80-year-old’s interest in the stock market and investing also dated back to his childhood, days spent in the customer lounge of a regional stock brokerage near the office of his father’s own brokerage firm.
During a trip to New York at the age of ten, he made it 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 ranch operated by a tenant farmer. By the time he finished college, Buffett had amassed more than $90,000 in savings.
His fortune today is estimated at around $42.2 billion!
So why do so many people think the stock market is risky and are so afraid of losing money that they don’t even take the time to research this highly lucrative money-making opportunity?
I suppose the answer to that question lies within the reader’s perception, but here’s my take on it…
The first time I became aware of buying shares was in November 1984 when more than 50% of British Telecom’s shares were sold to the general public. My wise mother was one of the first in line to get hold of some stock that she later passed on to her grandchildren. (I still remember the day I sold my kids’ stocks to pay a bill before the electricity was cut off!!)
Those shares bought at £1.30 are now trading at £29.83. If dividends were reinvested, you can imagine what a tidy profit would have been available in my sons’ inheritance pot today!!
I was first attracted to investing in the stock market after attending a Tony Robbins Wealth Mastery Event in 2005 and when I realized that I could make big profits from options trading alone, I invested a tidy sum in intensive training with two of the world’s best traders who I later realized were very teaching lucrative but bad risky strategies indeed. The cost of the course (£3,500) would have been a nice little investment at the time to get me started, but I knew I could easily get lost without the proper knowledge.
Over the past 10 years I have made a lot of money in real estate and much of it came after investing in training run by a well known real estate training company whose top trainers, The Secret Millionaire’s Gill Fielding and Kevin Green and the the very well known motivational speaker and real estate expert, Dr. Rohan Weerasinghe, taught me much more about real estate investing than I already knew. The cost of that course (£20,000) has been paid back to me many times over through deals I’ve made after learning some secrets to making money from real estate and I consider that expense one of the best investments I’ve made to date have done.
But what does that have to do with the stock market I hear you say!! Well… when rumors started to creep in early 2008 about problems in the banking sector, I quickly realized that the real estate market was about to change dramatically. This would have been fine if I hadn’t been in the middle of negotiations with a major Scottish bank who were about to provide financing for a multi-million pound property development deal which would have put me in a very comfortable position financially, had they not come back on the deal!
So it was “back to the drawing board” for me, when I realized that a huge door was closing on my real estate business when cash flow (not cash flow) started to dry up.
After dipping my toe in stocks in 2005, I knew there was potential to make money in this market, but I was nervous. Although I had some success trading options I knew it was risky and even though I invested £4000 in a personal ‘coach’…the one time I got stuck my attempts to get in touch failed take with my mentor and i panic!! Luckily I didn’t lose much money…just a few hundred pounds…but it was enough to put me off for a while.
During a conversation with another investor, it became clear that I could use the same strategies I had used in real estate 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 have developed my own understanding of exactly how the markets work and have introduced my knowledge to others.
But how exactly 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 affect the markets and what immediate and long term effect they can have on share prices and earnings.
Companies that trade on the stock exchange do so to raise capital for research and development, expansion, etc., and so the big companies that take their businesses to the stock exchanges around the world NEED investment money from the general public to grow. In return, they offer the investor a share of the company’s profits which, as we all know, can go up or down. This is how money makes the world go round!!
Most investors buy shares in a company through a stock broker. The ‘broker’ makes its money by charging the investor a fee when buying AND selling shares on behalf of the investor, regardless of whether the investor makes a profit or not.
It seems that many 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 even think about buying a car and taking a long trip without first learning how to drive safely and passing a driving test, would you? In fact, it would be illegal in this country to do that!! Once you invest in a car, which is a depreciation asset, you become familiar with that vehicle. You may not be a mechanic, but you will certainly have to go through it a few times during its life to keep the car running properly.
And yet, this is what’s happening in the stock market today…investors will “take a chance” on a “hot tip” from a friend or on an article they read in the FT. In many cases, people will hand over their hard-earned money (or sometimes inherited wealth) to a broker to invest on their behalf under the assumption that the broker knows everything about the markets. WARNING: Brokers are SELLERS and we all know that sellers have goals they need to meet, so do you think the broker is representing your best interests?
So, with little knowledge and little or no experience, you suddenly become the proud owner of a Share certificate… and then? 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 do you redeem your Certificate? What happens if the stock falls? Do you know what happens to your investment if the company goes bankrupt? Buy low and sell high is the general intent in stock market investing, and anyone who follows Warren Buffet knows this is his strategy (buy and hold).
I think it is safe to say that most investors are clueless about the above and yet they leave their financial well-being in the hands of someone they are unlikely to ever meet in person and who will no doubt face the wrath of the family members if and when they lose money. Unfortunately it is 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 out. They know which companies are safest to invest in and they get to know the heartbeat of that company. They know how often dividends are paid and if they are smart, they will reinvest those dividends plus any profits (the power of compounding!). They choose good quality companies that have a strong track record in the markets and they look for signs that give them advance warning that they may need to exit 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 small profits as prices fluctuate, ensuring more profits than losses over time and a greater profit share than if they just buy and hold .
The big winners in the stock market treat their investments like a business. They have goals, timetables, trading plans, exit strategies, insurance against loss, fees and overheads, tax relief and so on.
So if you’re considering investing in the stock market as a potential income stream – and I sincerely hope you do – make sure you get the right information…the right training…BEFORE embarking on YOUR journey to financial freedom begins .
The stock market will be around for a long time…prices will go down as well as up and even sideways for a while…and you can profit from the market whichever way it goes. There is nothing to be afraid of, 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 treat stocks as BUSINESS, use the fluctuations of the market to your advantage and seek a margin of safety. They will still be the cornerstones of investing a hundred years from now” Warren Buffet