Transcripts
The Timeless Investment Strategy
Speaker:Everything you need to start making money in the stock market today.
Speaker:Investpreneurs Book 1.
Speaker:Written by Bill Grand. Narrated by Russell Newton.
Speaker:Meet Jim.
Speaker:He’s 30 years old, and has $100,000 worth of student loan debt.
Speaker:He’s just now managed to land a job that he’d like to make a career of,
Speaker:but he’s spent most of his 20s scraping by on minimum wage and unpaid internships.
Speaker:He’s a hard worker, but wage stagnation has prevented him
Speaker:from getting any kind of meaningful raise.
Speaker:And the cost of living in his home city is so high that the raises he’s
Speaker:gotten haven’t made much of a difference when it comes to planning his finances.
Speaker:Now he finally has the funds to start thinking seriously about his retirement,
Speaker:but he still doesn’t have much to put away every month.
Speaker:Does this sound familiar?
Speaker:If you have anything in common with Jim, you’re hardly alone.
Speaker:For many people, the stressors of steep bills, scant job prospects,
Speaker:and an unstable economy make saving for retirement seem like more of a dream than a necessity.
Speaker:Most people don’t even start thinking about retirement until well into their 30s,
Speaker:and even then, they typically think about retirement in terms of “saving”
Speaker:or “putting away” money rather than investing it (Tweddale, 2019).
Speaker:Let’s return to Jim.
Speaker:Would it surprise you to learn that, by the time he turns 65,
Speaker:he will have $750,000 in his retirement account?
Speaker:He could do this by finding himself a really good job or landing himself a big promotion.
Speaker:He could win the lottery or inherit from a wealthy relative (Tweddale, 2019).
Speaker:These are all ways to accrue a great deal of wealth,
Speaker:but Jim’s strategy is easier and more reliable.
Speaker:All he’s going to do is put $1,000 into
Speaker:an investment account every month from age 30 to age 40.
Speaker:Once there, it will continue to accrue, at a rate of seven percent, until he’s 65 years old.
Speaker:Jim is going to save $120,000 over ten years,
Speaker:but that’s going to turn into $750,000 through the power of compound interest (Staff, 2019).
Speaker:You, too, could be like Jim.
Speaker:Better still, you could be like Joe, who started saving ten years earlier than Jim, at age 20.
Speaker:By the time Joe is 40 years old he, too, will have saved $120,000.
Speaker:But because he started saving earlier, he only had to put away $500 a month instead of $1,000.
Speaker:And because he chose to invest that money,
Speaker:he’s going to have $1,500,000 in his retirement account by the time he’s 65.
Speaker:The secret to financial security is not money, it’s time.
Speaker:With this book in hand, you’ll be able to use all the time you have to convert
Speaker:years of savings into hundreds of thousands of dollars in returns.
Speaker:Investment might seem like a game or a gamble,
Speaker:but it only becomes that way for people who start too late.
Speaker:The earlier you begin investing your money, the larger your accounts become.
Speaker:Whether you are 19 or 45, the time to start investing your money is now.
Speaker:Not tomorrow, and definitely not ten years from now.
Speaker:Every day that goes by is a day that you are losing thousands of dollars in potential savings.
Speaker:Too many people find themselves struggling for financial security throughout their lives
Speaker:because they don’t start thinking about saving their money until it’s too late.
Speaker:Many people never invest at all, mistakenly believing that investment is only for
Speaker:people who have already achieved a great deal of wealth (Staff, 2019).
Speaker:This book is here to make sure that you aren’t one of those people.
Speaker:Consider this a step-by-step guide on how to invest your money in ways that are smart,
Speaker:secure, and guaranteed to earn you high returns.
Speaker:You may believe that you don’t make enough money to start investing.
Speaker:You may believe that you’re too young to start worrying about your financial future.
Speaker:But the truth is that investment is not only for the rich.
Speaker:This book will provide you with real-world examples and practical guidance to help
Speaker:you begin your investment journey, no matter what your current financial situation may be.
Speaker:Whether you have student debt, a high mortgage, or even low credit,
Speaker:this book will help you to create an investment strategy that works for you.
Speaker:This book is organized in a chronological way,
Speaker:designed to walk you through the investment process step-by-step.
Speaker:From playing the stock market to setting up an investment account,
Speaker:each chapter will introduce a new phase in your investment strategy.
Speaker:Rather than trying to learn everything all at once, you can simply follow the
Speaker:book chapter by chapter, applying the concepts to your own finances.
Speaker:Whether you’re a complete beginner or have some experience with investments, the investment
Speaker:strategy outlined in this book has something you can use to improve your financial security.
Speaker:The strategies provided in this book are based on real-world numbers and marketplace research.
Speaker:New concepts and terminology are explained in clear, straightforward language designed to make
Speaker:you comfortable with the concepts and confident as you begin applying them to your own life.
Speaker:This book, above all, is a journey.
Speaker:The theories and concepts introduced here will
Speaker:always be grounded in practical ways that you can apply them to your own finances.
Speaker:The goal of this book is not simply to teach
Speaker:you the basics of stock market trading or investment strategy.
Speaker:This is a fully formed investment plan; a financial Global Positioning System that
Speaker:will guide you through the system toward the highest possible returns.
Speaker:You don’t have to take a course in economics or business to learn
Speaker:the ins-and-outs of smart investing, and you certainly don’t have to have
Speaker:sizable savings already under your belt before you start investing your money.
Speaker:The last thing you might want to do in your 20s is start planning for retirement.
Speaker:You’re just beginning your financial life.
Speaker:Between rent, loan payments, and all the rest of life’s expenses,
Speaker:it can feel like you barely have anything left to invest.
Speaker:You might feel just like Jim or Joe,
Speaker:and you may be wondering how in the world Jim ever managed to put away $1,000 a month.
Speaker:But remember - it’s not about how much you invest,
Speaker:it’s about how long your money is able to accrue interest.
Speaker:Have you ever heard the old saying, time is money?
Speaker:It’s more than just a metaphor.
Speaker:The earlier you begin investing,
Speaker:the less you need to invest every month in order to start making money.
Speaker:You don’t have time to waste trying to teach yourself about dividends or 401(k) accounts,
Speaker:and with this book in hand, you don’t have to.
Speaker:Follow the steps in this guide, one by one, and by this time tomorrow,
Speaker:you’ll be well on your way to becoming a smart investor with a solid financial future.
Speaker:Free Bonus
Speaker:You need to stop what you’re reading right now.
Speaker:Hey, this sounds counterintuitive isn’t it?
Speaker:Well, the reason is simple.
Speaker:I have a free bonus set up for you.
Speaker:The problem is this - we forget 90% of everything that we read after 7 days.
Speaker:Crazy fact, right?
Speaker:Here’s the solution - I’ve created a printable,
Speaker:1-page pdf summary for you… in regards to this book.
Speaker:All you have to do now is visit billgrand.com/hello.
Speaker:Once you visit billgrand.com/hello, it will be intuitive.
Speaker:Enjoy & thank you!
Speaker:Chapter 1 - Investment vs. Speculation
Speaker:The Dow Jones average tends to rise over time.
Speaker:The world of the stock market is approached through two main
Speaker:schools of thought - investment and speculation.
Speaker:Speculation is what most people think of when they think of “playing” the stock market.
Speaker:Speculators try to choose which stocks to buy and sell based on
Speaker:what they think the marketplace will look like in the future.
Speaker:But in the words of Warren Buffett,
Speaker:the market forecaster’s only job is to make a fortune-teller look good.
Speaker:No one can predict the future,
Speaker:no matter how consistent the trends may be or how reliable the data looks.
Speaker:Speculation is essentially gambling, taking chances on what you think might happen,
Speaker:rather than looking at the reality of the marketplace in front of you.
Speaker:This book is not about speculation.
Speaker:It’s about investment.
Speaker:As an investor, you never “play” the market, you study it.
Speaker:Investors make smart decisions that are grounded in their individual financial realities and the
Speaker:landscape of the stock market as it is, not as they think it might be.
Speaker:Investors don’t gamble, they trade.
Speaker:All investments are based firmly in facts.
Speaker:This book will never encourage you to gamble with your money,
Speaker:nor will it teach you how to “predict” future marketplace trends (Proctor, 2020).
Speaker:As an investor, you are not going to get sidetracked by “get-rich-quick” schemes.
Speaker:Investors get rich slowly, which is why the more time you have to accrue your wealth,
Speaker:the more wealth you’ll have when it’s time to cash out.
Speaker:Investment requires patience, especially in the beginning.
Speaker:But the advantage you have as an investor over a speculator is security.
Speaker:While speculators lose their money as quickly as they earn it,
Speaker:the accounts of investors only get bigger.
Speaker:Investing guarantees you peace of mind.
Speaker:You can sleep soundly at night knowing that your money is safe and your future is assured.
Speaker:To quote Warren Buffett again, it’s foolish to risk what you have
Speaker:and what you need for what you don’t have and don’t need (Proctor, 2020).
Speaker:The backbone of smart, or “defensive,” investing is a concept called dollar cost averaging.
Speaker:This is the process of investing the same amount
Speaker:of money at regular intervals of time into the same asset.
Speaker:The goal of this process is to protect your
Speaker:assets against the inevitable volatility of the marketplace.
Speaker:It effectively neutralizes your risk by spreading it out.
Speaker:Market values are constantly rising and falling,
Speaker:but over time, the trend is always an upward curve.
Speaker:Making small payments over a long period of time stops you from losing money when
Speaker:market values dip, while reaping the highest possible returns when the market values rise.
Speaker:In recent times, this strategy is more important than ever.
Speaker:In today’s marketplace, it’s not uncommon for individual stocks
Speaker:to jump or plummet by as much as 10% in a single trading session.
Speaker:When the market is this volatile, even the most cautious and defensive investor can be
Speaker:tempted to make knee-jerk decisions based on momentary realities that can ultimately
Speaker:cost them money in the long-run.
Speaker:The dollar cost averaging method helps to prevent you from making
Speaker:those knee-jerk decisions, helping you to consistently maintain your
Speaker:assets even in the face of the wildest marketplace swings (Proctor, 2020).
Speaker:The dollar cost averaging method asks you to treat individual assets as long-term investments.
Speaker:Over a certain period of time, you regularly make investments of the same dollar amount,
Speaker:with the expectation that the asset will slowly but steadily accrue interest over time.
Speaker:The investment schedule is completely up to you.
Speaker:Investors can choose to buy shares of that asset once per week, per month, or even per quarter,
Speaker:depending on what is comfortable for them in their current financial situation (Proctor, 2020).
Speaker:The most important aspect of the dollar cost averaging method is its consistency.
Speaker:Regardless of the asset’s price, you invest the exact same dollar amount every single time.
Speaker:It’s this rigid formality that protects you from marketplace swings.
Speaker:When the market is down, you can buy more shares per dollar invested.
Speaker:When the market eventually goes back up, your dollars will buy you fewer shares, but you’ll
Speaker:also earn that much more money on the shares that you purchased when the market was down.
Speaker:Let’s look at an example to illustrate how this method works.
Speaker:Imagine that you have $300 to invest every month.
Speaker:You decide to buy shares from an S&P 500 index fund on a regular monthly schedule.
Speaker:You’ve chosen this particular index fund because it’s currently trading at $30 per share.
Speaker:In the first month, your $300 gets you started with ten shares.
Speaker:If the fund increases in price to $50 the following month,
Speaker:then your investment will only buy you six more shares.
Speaker:But if the fund decreases in price to $20 per share, then you’ll be able to purchase 15 shares.
Speaker:Rigidly committing to investing your $300 every month, regardless
Speaker:of marketplace fluctuations, will greatly reduce the risk
Speaker:of your investment because the risk is spread out over several months.
Speaker:To use another example, imagine that you have $1,000 to invest
Speaker:in a stock that’s currently trading for $100 per share.
Speaker:If you were to invest that money all at once, you would be able to purchase 10 shares.
Speaker:But instead, imagine that you choose to invest just $250 per month over a period of four months.
Speaker:By the end of the fourth month, you will still have invested $1,000.
Speaker:In the first month, $250 will buy you 2.5 shares.
Speaker:But imagine that, in the second month, the price per share goes down to $90.
Speaker:In the second month, $250 will buy you 2.78 shares.
Speaker:In the third month, the price goes down to $85, which gets you to 2.94 shares.
Speaker:And finally, the price goes down to $80 in the fourth month,
Speaker:which buys you 3.12 shares (Proctor, 2020).
Speaker:At the end of four months, you will have 11.34 shares instead of
Speaker:the 10 that you would have if you invested your $1,000 all at once.
Speaker:An extra 1.34 shares may not seem like much, but 1.34 shares worth of extra profit for every
Speaker:dollar of stock price growth in the future.
Speaker:And since you’ll continue to buy shares even when the market is down,
Speaker:your account never decreases in value (Proctor, 2020).
Speaker:In addition to risk-reduction, the second biggest advantage of dollar
Speaker:cost averaging is that it removes emotion from the investment process.
Speaker:In personal relationships, remaining connected to your feelings is healthy and beneficial.
Speaker:But in the world of investment, emotional decisions can cost you a great deal of money.
Speaker:In the face of huge marketplace swings, it can be extremely tempting to try to “time” the market.
Speaker:It will be tempting to increase your investments when prices are cheap,
Speaker:hoping to make a huge profit when the market swings up again.
Speaker:But this kind of erratic behavior increases your risk.
Speaker:This is how even smart investors end up losing money.
Speaker:If you rigidly make the exact payments every single time,
Speaker:you won’t be allowing your own fears and excitements to control your financial future.
Speaker:It can’t be stated enough - the stock market is impossible to predict.
Speaker:Just because a stock or fund dropped by 30% this week does not mean that it’s
Speaker:going to rebound by 20% next week, or even next month, for that matter.
Speaker:Constantly hopping in and out of stock positions is guesswork.
Speaker:Predicting marketplace trends is extraordinarily difficult even
Speaker:for investment professionals who spend 40+ hours a week studying the market.
Speaker:You almost certainly have better things to do with your time and your money.
Speaker:If you make yourself an investment schedule and stick to it,
Speaker:then you’ll never have to worry about marketplace trends again.
Speaker:While other investors are up all night watching the market rise and fall,
Speaker:you’ll be sleeping soundly with the knowledge that your assets are secure.
Speaker:Dollar cost averaging stops you from becoming emotionally invested in marketplace fluctuations.
Speaker:You won’t feel the need to panic when the market falls,
Speaker:nor will you be tempted to risk your hard-earned money on high-risk investments.
Speaker:Dollar cost averaging keeps you secure,
Speaker:but it also keeps you smart when deciding which asset to purchase in the first place.
Speaker:Unfortunately, no investment method is fool-proof.
Speaker:Dollar cost averaging does have a few drawbacks.
Speaker:First and foremost, the marketplace tends to go up more than it goes down.
Speaker:This means that it can take a while before you start making any real profits on your investments.
Speaker:To illustrate how this works, let’s return to our previous example.
Speaker:You have $1,000 to invest, and you’ve chosen to invest in an
Speaker:asset that’s currently trading at $100 per share.
Speaker:Rather than investing your $1,000 all at once,
Speaker:you decide to spread it out over four months at $250 per month.
Speaker:In the first month, your $250 earns you 2.5 shares.
Speaker:But imagine that in month two the price per share increases to $110.
Speaker:Now your $250 will only buy you 2.27 shares.
Speaker:In the third month, the price increases to $115, which only earns you 2.17 shares.
Speaker:And in the fourth month, the price climbs to $120, which only gets you 2.08 shares (Proctor, 2020).
Speaker:At the end of the four months, you’ll only end up with 9.04 shares,
Speaker:rather than the 10 shares you would have earned if you had invested your $1,000 all at once.
Speaker:So while dollar cost averaging will protect you when the market is low,
Speaker:it can hold you back when the market is high.
Speaker:And long-term S&P 500 data does indicate that high,
Speaker:or “bull” markets, tend to last longer than low, or “bear,” markets.
Speaker:Investing your money all at once is called “lump-sum” investing,
Speaker:and many investors choose this method over dollar cost averaging because they
Speaker:don’t want to wait for the market to go through a cycle of falling and rising
Speaker:before they start making money on their investments (Proctor, 2020).
Speaker:At the end of the day, the investment method that you choose is up to you.
Speaker:But if you’re like most 20- or 30-somethings,
Speaker:then you probably don’t have a big chunk of money to invest in a lump-sum scheme.
Speaker:The dollar cost averaging method helps you to budget a set amount
Speaker:of money every month that you’ll put toward investment assets.
Speaker:It’s a slow-and-steady method, but the more time you have,
Speaker:the more money you will make in the long-run.
Speaker:In real life, your investment schedule won’t be a mere four months.
Speaker:You’ll be choosing an investment schedule that you plan to stick with for the next ten years.
Speaker:No matter how long it takes your asset to start earning you money,
Speaker:when you do start earning, your profits will climb exponentially.
Speaker:You have time on your side, and that means you don’t have to start making a profit tomorrow.
Speaker:You’re playing the long-game, and that means you can afford to wait for your wealth to accumulate.
Speaker:Speculation and the Flawed Theory Behind It
Speaker:Research the company or companies you want to invest in.
Speaker:In many ways, speculation is the opposite of investing.
Speaker:Speculators study the market as it rises and falls, hoping to cash in on sudden swings.
Speaker:Speculators trade assets, rapidly buying and
Speaker:selling assets in an attempt to profit from potential upswings.
Speaker:If you have a great deal of money to play with,
Speaker:then there’s nothing inherently wrong with a speculative approach to the stock market.
Speaker:But most of us don’t have hundreds of thousands of dollars to lose on a
Speaker:high-risk investment, especially when we’re young.
Speaker:Speculation is like a hobby or even a career, something that people devote
Speaker:themselves to full-time in an attempt to make a huge profit in one lucky move.
Speaker:While it’s true that you might strike it rich,
Speaker:you could just as easily lose your entire life savings.
Speaker:Investment is a long-term plan, done with the intention of increasing your financial security.
Speaker:Speculation, on the other hand, might make you more money, but it always decreases your security,
Speaker:because you never know if your investments will bring you wealth or ruin (Yeo, 2017).
Speaker:Investors make their decisions based on the asset itself.
Speaker:They buy now with the intention of making that money back, with interest, in the future.
Speaker:And investment doesn’t only apply to stocks.
Speaker:Whether you’re choosing to sink your money into apartments, farms, commodities, or the stock
Speaker:market, an investor always looks at the asset as a money-maker in the distant future (Yeo, 2017).
Speaker:For this reason, the initial price or value of the asset is not important to an investor.
Speaker:An investor’s primary concern is making money in the future.
Speaker:When choosing an asset, investors aren’t thinking about what will make them money the quickest,
Speaker:they’re thinking about what will make them the most money in the long-run.
Speaker:Investors are always thinking in the long-term,
Speaker:and therefore understand the difference between “price” and “value."
Speaker:Price is what you pay for something, but value is what you get from it.
Speaker:In the world of investing, the ultimate
Speaker:value should always be more than the initial payment price.
Speaker:This is why dollar cost averaging is such a popular method for young investors.
Speaker:They are not concerned about what the market is going to look like tomorrow or next week.
Speaker:They understand that, over the course of years, any business is going to continue to make money.
Speaker:The overall trend will always be upward, and that means that,
Speaker:as long as the investor sticks to their chosen investment schedule,
Speaker:they will end up earning far more than they paid for their investments.
Speaker:Speculators, on the other hand,
Speaker:are more concerned with the price of the asset than with the asset itself.
Speaker:Speculators look for the cheapest assets that
Speaker:are predicted to increase in value over the next quarter.
Speaker:They buy up as much as they can while the asset is cheap,
Speaker:hoping to turn over a huge profit within a very short time.
Speaker:To many, speculation sounds like gambling,
Speaker:especially if you accept the reality that marketplace trends are unpredictable.
Speaker:But the difference between speculating and gambling is that gamblers don’t
Speaker:need to be part of the system into which they’re sinking their money.
Speaker:For example, imagine you cast a bet on the outcome of a football game.
Speaker:The football game’s operation and ultimate outcome exist independently of your bet.
Speaker:If you bet nothing at all, the game will go on with the same outcome.
Speaker:If you bet thousands of dollars or just a few, it doesn’t matter.
Speaker:Gambling is 100% based on luck, and the gambler
Speaker:always exists independently of the system off which it’s making money (Yeo, 2017).
Speaker:Speculators, on the other hand, are still part of the system.
Speaker:They are active “investors” in the economic system,
Speaker:and the amount of money that they choose to invest can have
Speaker:an impact on the failure or success of the asset they’re trying to profit from.
Speaker:Speculators don’t blindly place bets and watch the market change from afar.
Speaker:They buy up cheap assets that they have reason to believe will quickly increase
Speaker:in value and make them a handsome profit in a short amount of time (Yeo, 2017).
Speaker:The major flaw in the theory of speculation is
Speaker:assuming that marketplace predictions are possible.
Speaker:The marketplace doesn’t exist in a vacuum,
Speaker:and trends don’t rise and fall based on a closed, internal system.
Speaker:Marketplace trends are affected by political events, social upheaval, and even public opinion.
Speaker:A speculator in December 2019 would have no idea that the coronavirus pandemic
Speaker:would take the world economy by storm just one month later.
Speaker:When CEOs fall out of popular favor, shares in their companies can decrease.
Speaker:And individual businesses are constantly working to turn a profit.
Speaker:A business that seems like it’s struggling now may turn itself around in five or ten years.
Speaker:A speculator will miss out on those earnings, but an investor will weather the storm.
Speaker:And on the flip side, a speculator may invest a great deal of money in
Speaker:anticipation of an upcoming advertising campaign or political election, only to
Speaker:find that the public response to those events was very different from what was expected.
Speaker:Speculators don’t look at the asset itself, they just look at the asset’s price action.
Speaker:But looking at the marketplace numbers as simple numbers is misleading.
Speaker:An investor understands that share prices and
Speaker:marketplace trends are reflections of events happening in real life.
Speaker:Those numbers are based on business deals, international relations,
Speaker:major political events, and even public opinion of certain assets.
Speaker:Investors understand that prices are constantly changing,
Speaker:and so they don’t invest for price, they invest for value.
Speaker:Investors choose assets that they can reasonably
Speaker:expect will still be making money in ten or even twenty years from now.
Speaker:Speculators believe that tomorrow is easier to predict than ten years into the future,
Speaker:but in the world of finances, the truth is quite the opposite.
Speaker:If you’re looking for a secure investment strategy,
Speaker:you’re not counting on your investments to pay your bills.
Speaker:The money that you’re putting in now you aren’t expecting to get back for a long time.
Speaker:This is the wealth that you will retire on, the wealth that will help you to live
Speaker:in security and comfort after a lifetime of working and budgeting like everyone else.
Speaker:Dollar cost averaging helps to make investment possible for people of all
Speaker:incomes because it allows the individual to invest only what they have to spare.
Speaker:If you choose to invest $5 a week in your chosen asset because that’s all
Speaker:you have after you’ve paid your bills, that’s ok.
Speaker:If you have $500 a month to invest, that’s ok too.
Speaker:No matter how much you put in, you will get back more.
Speaker:But in order for you to turn a profit, you have to wait.
Speaker:Like tending a vegetable garden,
Speaker:investors maintain their assets and watch their profits grow,
Speaker:understanding that they won’t be able to reap the fruits of their labor for a long time (Yeo, 2017).
Speaker:Speculators, on the other hand, often don’t have an income.
Speaker:They don’t have another way to pay their bills or maintain their lives.
Speaker:Speculation is a career unto itself, because in order to have
Speaker:any hope of turning a profit they have to study the marketplace in real-time.
Speaker:They have to know as much as they can in order to make accurate predictions,
Speaker:and even then, they often find themselves losing just as much as they gain.
Speaker:Speculation isn’t a long-term plan for security,
Speaker:it’s an attempt to make a lot of money in a short amount of time.
Speaker:How long that money lasts depends on the speculator,
Speaker:the asset, and the whims of a highly volatile marketplace (Yeo, 2017).
Speaker:For this reason, speculators take on a lot more risk than investors do.
Speaker:There is no such thing as a zero-risk
Speaker:investment, and even the most defensive and careful investors sometimes lose money.
Speaker:But speculators understand that there’s a chance of losing the entire principal
Speaker:investment amount, which is nearly impossible for a defensive investor.
Speaker:You may lose something on an investment, but you’ll rarely lose everything.
Speaker:Speculators, on the other hand, lose everything - all the time.
Speaker:While you’ll find speculators and investors in multiple different economic arenas,
Speaker:there are certain territories that are more likely
Speaker:to attract investors than speculators, and vice versa.
Speaker:Investors typically stick to the stock market, bonds,
Speaker:U. S. treasuries, mutual funds, and property.
Speaker:These are all investment markets that, slowly but surely, trend upward.
Speaker:In spite of wide fluctuations, these markets are relatively stable in the long term.
Speaker:These are markets where, if you invest your money in a regular and disciplined way,
Speaker:you are almost guaranteed to find yourself with huge profits in ten or twenty years’ time.
Speaker:Though plenty of speculators do “play” the stock market, speculators tend to be drawn to markets
Speaker:that are less stable, where lots of money can be made (or lost) in a very short amount of time.
Speaker:These kinds of markets are places like options,
Speaker:futures, foreign currencies, startup companies, and cryptocurrencies.
Speaker:These markets are either too new or too volatile to be viable places for investment.
Speaker:The risk involved in any of these markets is extremely high, but speculators are drawn to
Speaker:them because the potential profits to be made are also extremely high (Yeo, 2017).
Speaker:The difference in goal planning is referred to as the investment’s “time horizon."
Speaker:The time horizon is very long, often decades into the future.
Speaker:The time horizon for speculators, on the other hand, is quite short, often less than a year.
Speaker:And the time horizon for gamblers is shortest of all.
Speaker:Gamblers are expecting to win or lose money within the same day, and are rarely
Speaker:doing anything in the way of planning or strategizing for the future (Yeo, 2017).
Speaker:The level of risk is the key difference between the financial styles.
Speaker:Investors have only a moderate risk.
Speaker:There are no guarantees, but the longer the investment schedule,
Speaker:the more stable the investment is, and the lower your risk becomes.
Speaker:Speculators, on the other hand, have a very high risk.
Speaker:They could make a significant profit, but they could also lose everything,
Speaker:and spend a lifetime trying to make back the money that they earned.
Speaker:And gamblers have the highest risk of all.
Speaker:Gambling money is made and lost so quickly, and in such arbitrary ways,
Speaker:that it’s nearly impossible to devise a gambling “strategy."
Speaker:Gamblers are literally betting their security on forces beyond their control.
Speaker:Whether or not they make a profit is left almost entirely up to chance.
Speaker:Introducing Mr. Market and the Market Psychology
Speaker:Investing in the market, without involving your emotions, is key.
Speaker:To help people better understand the financial marketplace,
Speaker:investor Benjamin Graham published an investment guide in 1949 called The Intelligent Investor.
Speaker:In this book, he introduced a character called Mr. Market,
Speaker:which he used as an allegorical tool to represent marketplace fluctuations,
Speaker:and guide investors as to the best way to handle those fluctuations.
Speaker:In his book, Graham asks the reader to imagine that they are the owner of a business.
Speaker:Their partner and co-owner is a man named Mr. Market.
Speaker:This partner is frequently offering to sell his share of the business to the reader,
Speaker:but just as often makes offers to the reader to buy their share.
Speaker:In the allegory, this partner is characterized as having a manic-depressive personality,
Speaker:with mood swings that range from wildly optimistic to toxically pessimistic.
Speaker:The reader is always free to decline Mr. Market’s current offer, as they know that his mood will
Speaker:soon change and a new offer will soon be on the table (Wikipedia Contributors, 2020).
Speaker:Mr. Market is said to be manic-depressive, or what we would today call bipolar.
Speaker:He is emotional, euphoric, and moody, swinging between extremely high highs and equally low lows.
Speaker:He is often irrational, allowing his mood to dictate his business dealings
Speaker:more than any logical guidance or considerations.
Speaker:The transactions that he offers are strictly at your option,
Speaker:meaning that you are free to accept or decline at your convenience, secure in the
Speaker:knowledge that he’ll soon be back with another offer depending on where his moods take him.
Speaker:He is there to serve you, but he is not there to guide you.
Speaker:He has nothing to offer you in the way of advice, and even if he could advise you,
Speaker:his moods are so unpredictable that you would be unwise to trust anything
Speaker:that he had to say (Wikipedia Contributors, 2020).
Speaker:Graham describes him as being a voting machine in the short term,
Speaker:but a weighing machine in the long term.
Speaker:In other words, his short-term decisions are based more on current trends,
Speaker:sociopolitical moods, and popularity than anything financially concrete.
Speaker:On the other hand, his long-term decisions are based more in values and numbers,
Speaker:and though his moods might seem erratic from day to day,
Speaker:they reveal certain patterns when looked at over the course of years.
Speaker:He will sometimes make you savvy business offers,
Speaker:but he will just as frequently give you the option to buy low or sell high.
Speaker:Despite all this unpredictability,
Speaker:you keep him on as a business partner because he is frequently efficient - but not always.
Speaker:At the end of the day, it’s your financial savvy that’s keeping the
Speaker:business afloat (Wikipedia Contributors, 2020).
Speaker:Mr. Market’s mood swings are erratic in the sense
Speaker:that you have no idea when he’ll be feeling up or down.
Speaker:However, they do have a certain predictability, in the sense that you can expect frequent changes.
Speaker:Therefore, you can always wait to buy until Mr.
Speaker:Market is in a low mood and offers you a low sale price.
Speaker:You have the option to buy at that low price,
Speaker:or wait for his next low mood to see if you can get an even better offer.
Speaker:To this end, Graham stresses that patience is the most important
Speaker:quality the reader can have when doing business with Mr. Market.
Speaker:Mr. Market has proved such a useful allegory for explaining investment psychology that it
Speaker:remains a popular teaching tool to this day, about 70 years after Graham published his book.
Speaker:The allegory makes it extremely clear that the only reason for the changes
Speaker:in Mr. Market’s price offerings are his emotions.
Speaker:A rational person, or an intelligent investor, will wait until the price is
Speaker:high before he sells, and wait for the price to fall before he buys.
Speaker:The intelligent investor, however, will not sell because the price is high,
Speaker:nor will they buy because the price is low.
Speaker:There is no need to capitalize on the current situation because you
Speaker:know that same situation will come around again and again.
Speaker:All you need is patience.
Speaker:The ultimate financial decisions should be up to the investor.
Speaker:If you decide you want to sell, you wait for prices to climb.
Speaker:If you decide you want to buy, you wait for the prices to drop.
Speaker:The intelligent investor won’t let the whims of
Speaker:the marketplace influence their financial decisions.
Speaker:Instead, they will wait patiently for the marketplace to offer the right circumstances
Speaker:for them to fulfill their own financial goals (Wikipedia Contributors, 2020).
Speaker:To determine whether or not you want to continue investing in an asset,
Speaker:or sell with the intention of cashing you, Graham advises determining whether the stock valuation
Speaker:of a company is reasonable after the investor calculates its value via fundamental analysis.
Speaker:This might sound complicated, but it’s actually a fairly simple process.
Speaker:Fundamental analysis simply means looking at a business from a big-picture perspective.
Speaker:You don’t just look at the value of the business’s current assets,
Speaker:you also look at its liabilities, earnings, health, competitors, and the state of the market.
Speaker:You consider the company’s worth in the greater context of the economy it belongs to.
Speaker:This will help you determine whether or not it’s a worthwhile investment for you.
Speaker:This is how you determine whether or not a company will continue to make
Speaker:you money as an investor twenty years into the future (Wikipedia Contributors, 2020).
Speaker:Warren Buffett frequently quotes from Graham’s book, and is one of the primary figures
Speaker:responsible for making the Mr. Market analogy a common tool used by investors to this day.
Speaker:It’s a very simple way to express a concept that
Speaker:can be difficult for first-time investors to understand - there
Speaker:is often no rational explanation for why stock market prices rise and fall.
Speaker:There are so many factors at play that contribute to the
Speaker:market’s fluctuations that trying to understand them is pointless.
Speaker:It’s like… well, it’s like working with someone who is severely manic-depressive.
Speaker:Their mood swings are motivated by internal chemistry and personal triggers.
Speaker:They may not always follow any kind of logical or predictable pattern.
Speaker:As such, trying to let market trends guide or influence your investment
Speaker:decisions is like allowing an emotionally unstable person to run your business.
Speaker:The parable of Mr. Market helped Graham to introduce
Speaker:a market concept he called the “margin of safety."
Speaker:The margin of safety is how much risk is involved in a potential investment.
Speaker:The higher the margin of safety, the lower the risk.
Speaker:The lower the margin of safety, the higher the risk.
Speaker:Mr. Market’s mood swings might make an offer seem attractive at the moment,
Speaker:but you, as his partner, must be able to see beyond the price he puts on the table.
Speaker:You have to take a look at what he’s actually offering.
Speaker:If the price is right but the offer is risky,
Speaker:then the margin of safety is too low for it to be a good investment.
Speaker:If, on the other hand, Mr. Market makes a sound offer for too high of a price,
Speaker:then your job is to look ahead into the future.
Speaker:How much value do you stand to make from purchasing now?
Speaker:Can you afford to wait for another change in Mr. Market’s moods,
Speaker:to see if you can get a lower price for the same offer?
Speaker:Remember, there is a big difference between price and value.
Speaker:Benjamin Graham used his Mr. Market analogy to found an
Speaker:entire theory of investing called “value investing."
Speaker:Value investing means waiting to buy stocks or otherwise invest
Speaker:in assets when the stock is worth more than its price on the market.
Speaker:Don’t choose assets based on how they’re priced.
Speaker:Choose assets based on their potential price.
Speaker:To this end, Graham advised reading the financial
Speaker:statements and footnotes of unpopular or neglected companies with low market values.
Speaker:Do these companies have any hidden assets, including investments in other companies,
Speaker:that the market at large may be neglecting at this moment?
Speaker:What is the potential for growth that these companies have?
Speaker:Do you see this company making money ten years into the future?
Speaker:What about twenty?
Speaker:Just because the company is undervalued now means nothing.
Speaker:Eventually, the market will see what you see, and when the market prices go up,
Speaker:you’ll start seeing huge returns on your initial investments (Wikipedia Contributors, 2020).
Speaker:This mentality is the secret to good, defensive investing.
Speaker:The more you start to view the stock market through the personality of Mr. Market,
Speaker:the less emotionally susceptible you will be to its constant and erratic changes.
Speaker:Rather than obsessively watching the stock market reports every day,
Speaker:you’ll be able to maintain a cool, emotional distance when making your
Speaker:investment schedules and choosing the best asset in which to invest your money.
Speaker:The Mr. Market analogy has been helping investors for decades
Speaker:to protect themselves from “emotional bias."
Speaker:This is what happens when our emotions initiate a shift in our perceptions,
Speaker:causing us to view situations in a way that affects our decisions making.
Speaker:Emotional bias can cause us to look at neutral events from a negative perspective,
Speaker:or to believe that something is positive even when there is objective evidence to the contrary.
Speaker:Emotional bias can make it very difficult for us to accept hard facts, especially when those
Speaker:facts are unpleasant or give evidence to a reality that we don’t want to accept.
Speaker:Emotional bias causes us to behave like Mr. Market.
Speaker:It causes us to make risky decisions out of excitement,
Speaker:and miss solid investment opportunities out of fear.
Speaker:When we make too much of the market’s senseless fluctuations,
Speaker:we allow our dreams, hopes, and fears to interfere
Speaker:with our ability to make sound financial decisions (Wikipedia Contributors, 2020).
Speaker:Intelligent investors don’t need to keep on top of market trends because
Speaker:they understand that that’s all they are - trends.
Speaker:Lows will become highs, which will become lows again.
Speaker:The only winning game in the investment world is the long-game.
Speaker:The more time you can sink into an asset, the more money you will make,
Speaker:regardless of the size of your investments.
Speaker:The trick, however, is to dedicate that time to an asset that is stable, reliable, and low-risk.
Speaker:This has been the Timeless Investment Strategy.
Speaker:Everything you need to start making money in the stock market today.
Speaker:Investpreneurs Book 1.
Speaker:Written by Bill Grand. Narrated by Russell Newton.
Speaker:Copyright 2020 by Investpreneurs.
Speaker:Production Copyright by Investpreneurs.
