What is investing?
Reading time: 2-3 minutes (592 words)
What describes investing best?
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Before we dive in the details, you have to make a very important decision. As Benjamin Graham, mentor of Warren Buffet, mentioned in his book “The Intelligent Investor”:
You have to make the decision to be either a full fledged investor that dives into the details of a company or create a portfolio that runs on autopilot. Don’t take this lightly. If you want to buy individual stocks you have to do a lot of research. This easily consumes many hours a week, especially if you are just starting to learn the basics. There is a reason why 95% of the people fail to beat the market with their hand picked portfolios. It requires determination, dedication and sacrifices to create a portfolio that not only beats the market (beating the zero effort approach) but you also need to master your emotions.
This guide is mainly for investors that want to have the statistical edge and want to invest time to know everything about investing in stocks, bonds or other financial products. That is not required when using a zero effort approach. Either way, I would suggest you read this guide regardless of your path. You will learn valuable information in an easy and fun way by doing quests just like the one above.
2.1 Emotions and the market
To give you some thought about your choice: almost every mistake ever made while trading or investing is made because of emotion. Most people have no clue how to handle their emotions when they are in stressful financial markets. Simply because they have no idea what they are doing. When there is something at stake (like your hard earned cash) people will do everything to prevent failure. While this is good practice, emotions delude their thinking. They end up doing the wrong things and make the situation even worse (trying to win their money back).
Did you ever jump into an “investment” because someone else recommended it or you read somewhere about the next big thing giving very high returns? Even though most people know when things are too good to be true, once you’re in an emotional state thinking this might be the thing that will make you rich you will make mistakes. Jumping in a ponzi scheme, buying worthless stocks, spending all your savings on just one thing… There are millions of examples out there how people lost their money.
Considering many individual and even die hard veteran investors fail to beat the market, taking the autopilot zero effort approach is probably the best way to invest for 95% of the people. You’ll learn more about this later on.
Before you begin investing your hard earned cash, it’s vital to know how to handle your personal finances. If you are completely new to investing, I highly recommend you read my guide “Learn all basics of trading and investing” first. Here you will learn everything about your personal finances, determine your goal and what kind of investor you want to be. This is really important because you need to handle your personal finances first before you start investing. If you don’t, you will make costly mistakes. Just take your time and read the entire guide. Once you are done, come back to this guide.
Chapters: The Ultimate Investing Guide
- 1. Intro2. What is investing?3. What are stocks?4. Types of stocks5. Why buy stocks?6. How to buy stocks7. Store stocks8. Stock splits9. Stock quests10. What are bonds?11. Secured bonds and maturity12. How do bonds work?13. Credit rating14. Treasury bonds15. Corporate bonds16. Municipal bonds17. Agency bonds18. Bond quests19. Mutual funds20. Mutual funds earnings21. ETFs22. Why ETFs23. Index funds24. Hedge funds25. Derivatives26. Commodities27. Indices28. Overview29. Determine company value30. IPOs31. Penny stocks32. Dividends33. Financial health34. Profitability35. Operating efficiency36. Liquidity37. Solvency38. Market Evaluation39. Not only numbers40. Investing portfolio considerations41. Creating portfolio42. Buy/Sell Strategy43. Broker44. Emotions45. Final steps46. Key Concepts
How you think about this?