Anyone who has given enough time and money to the stock market is smart enough to question it. Just like a brick in an oven, for long enough, the bricks won’t even seem to take shape.
However, if there are enough bricks in a stack and they’re all placed under the same surface, even with the effects of gravity on the heat at play, the stack can suddenly stand tall and hold all those weight bricks above.
It’s the same thing with money in the stock market. All it takes is the right location, the right situation, and a few smart investors.
Money finds its right place. That place might not be a million dollars or even a hundred thousand dollars, but just like the stack of bricks, it can stand tall, balance, and take all the power and weight added onto it.
Remember, the stock market is not the market of money but the market of ideas, optimism, and creativity delivered from those who buy and sell those ideas. While it’s quite easy to understand money in the real world, it is harder to see it in the stock market.
It’s the market of ideas, and as someone who’s never had to invest my life savings in stocks, it’s a game I am interested in trying out for once.
What it means to be rich
According to Wikipedia, being rich is the opposite of poor or starving. To be poor means you have too little money compared to the other person to provide you with necessities.
To be poor means you cannot provide your necessities with the money you have while being rich means you have more than enough to provide those necessities with. However, being rich is not just about money.
Having a million dollars does not automatically make you happy.
Just like all of us have some bias when it comes to our perception of reality when it comes to reality, some of us prefer to see it one way, some of us like to see it another way, and some of us prefer to see it an entirely different way.
But the very fact that we choose to see the world in such ways means we are all rich. That’s the definition of rich.
Whether we’re rich with money, resources, or knowledge, we are all rich with one thing, and that is the truth.
At the end of the day, we’re all searching for happiness. As an investor, I am one too.
I am also a blessed person to have money in my life but who is more concerned about the future than the past. I look towards the coming months and years as the most important days of my life because they’re my future.
How the stock market works
The stock market works on a concept known as Efficient Market Hypothesis (EMH). This theory states the market is efficient in its price discovery process, and it will always return the price of its underlying asset.
It explains that market prices can only be influenced by legitimate, profitable new factors and forces. The investment world is highly efficient in price discovery, meaning its price discovery process happens faster than a stone.
A stock market will operate by market makers that agree to buy and sell the same amount of stock simultaneously at the same price to establish and maintain the proper price and a transparent, fair market in the stock. While this sounds like an easy concept, it is much easier said than done.
In the process of establishing a fair market in a stock, the sellers have to know a fair price is not only the price they’re asking for but the price they’re willing to sell it for.
What I’ve learned in investing is that smart money knows the right price. Sometimes, you will see an analyst being bullish on a stock, and by the time it’s been trading for a while, there is no bottom left to sell it for.
This is because, by the time the initial buy level was hit, the smart money already knew the price they wanted. This is why I like to take smart money when it comes to analyzing a stock I’m going to be investing in.
In the late 1940s that E. F. Hutton revolutionized the marketplace with his famous ad of “buy low, sell high.” The simple message was that the smart money’s time horizon is infinite, meaning that they buy and hold stocks until they are sold, which means they will rarely sell at a loss and, more often than not, their time horizon will be longer than most investors.
When I think about a stock’s long-term price chart, I want to think about smart money. Smart money tends to buy and hold stocks for years and, even though some analysts, such as myself, say the smart money doesn’t get it right 100 percent of the time, I like to believe it knows what’s right.
What is my investment philosophy?
My investment philosophy is simple and straightforward. It is to always go against the mainstream and do the opposite of what the crowd is doing.
This means that I will never chase trends or look for obvious reasons to buy.
By going against the crowd, by not chasing trends, or paying attention to all of the details, I can usually make money. However, there is a downside to this.
Doing the opposite of the crowd is also going against the majority, meaning that I stand a perfect chance of making mistakes because, in my mind, it is impossible to catch everything.
I believe a lot of the time, one of two things happens when someone sees a trend and thinks it’s easy to exploit. Either the trend is being manipulated, meaning the trend is being created artificially, which means it won’t last, or, more often, the trend is legitimate.
After doing a lot of research, I’ve concluded that it is more likely that the trend is legitimate and is the result of valid events.
When I decide to buy a stock, I use a checklist to determine if it’s legitimate. I ask myself the following questions:
- Does the stock have a strong history of consistent growth in earnings and/or revenue?
- Has the stock been profitable in each of the last three years?
- What is the earnings yield of the company?
- Is it close to its 52-week high?
Once I answer these questions, I decide on whether or not I want to buy the stock. If I decide to buy, I’ll continue to research the company to determine if it will be a good long-term investment.
If I decide to sell, I look for a pullback and decide whether I will add to my position or let it go.