Stock Market : Primer #1

This article has been a long time coming, quite simply because I’ve put in years towards unraveling the stock market.  Yes, the stock market is considered an essential place to use your money to make money.  A lot of the SAGA articles display the “6% Compound Interest” scenario, used for the SAGA projections of how cash saved now turns into fortunes over a lifetime.

There ARE ways to establish a sane, cash building portfolio in the stock market.  There are also ways to incinerate piles of cash in mere instants, if you start picking stocks yourself, and don’t know what the scene is really doing to your money.

That’s why the stock market can appear like a life raft, with safe growth on one hand, while on the other hand, looking like an insane hatchet fight that’s impossible to win.

kidsmax__span(image from: badassdigest.com)

We have to look at the sane notion of the stock market, in order to develop a reasonable approach to saving cash and leveraging it through safer market options.  However, it’s my duty to to discuss the problematic nature of one of the dirtiest places on Earth…

The truth is, the stock market is brutal.  It’s FILLED with cheaters, and not just little cheaters with remote insider trading problems.  We’re talking mammoth cheaters.  Without getting into prolonged detail, consider that Jim Cramer (the loud stock-talk guy on television) who was large hedge fund manager admitted to constant price manipulation, spreading false rumors about companies, and basically  cheating his ass off constantly.  Consider also the recent scandal, summed up here:

“Traders from JPMorgan Chase (JPM), Citibank (C), HSBC (HSBC), Royal Bank of Scotland (RBS) and UBS (UBS) used private Internet chat rooms to share information about the foreign exchange trading activities of their firms’ clients and collude on strategies aimed at manipulating benchmark exchange rates for pairs of leading world currencies such as the British pound and U.S. dollar and the U.S. dollar and Japanese yen, regulators said.” (QUOTED FROM USA TODAY)

Most Google searches about the stock market bring up ordinary info-posts, which I feel is a disservice to MILLIONS who will drop whole chunks of their life savings into stocks with half-baked decision making capability due to lack of knowledge.  The first SAGA article on the stock market can only feature a Lord of the Flies style picture of kids battling in the Thunder-dome because SAGA deals with the truth first.  The stock market is a dirty place, with headbutts, groin kicks, handmade shivs, and gang fights.  It’s ingrained in the fundamental nature of the way the stock market is set up because:

FOR SOMEONE TO WIN,
SOMEONE ELSE MUST LOSE

By all means, the current mechanism of the stock market is very poor model for the entire human financial system to derive itself.  I assert that humanity would be better off with a different model.  However, TODAY, this is the model we have.

Let’s look at the recent past.  Not long ago, we experience two stock market crashes:
The Dot Com Bubble
The Real Estate Mortgage Crash

Investor portfolios took serious hits.  However, through smart investment tools, they were able to weather the storm, and their portfolios are back on top.  Their money has grown through the years, and the SAGA projections still rang true for them.

SAGA will not SELL you on the idea of putting your life savings into the stock market, however, we use it as a base.  6% Compound Interest found in combination of stock market tools, and your own business venture (or increase of income through job migration or promotion) can lead to Early Retirement.  The risk is our own to bear as individuals, as we make each choice along the way.

VANGUARD FUNDS:

When someone asks me what to do with their money, I recommend Vanguard Funds, which is the same answer that most reliable advisers give (advisers who are not fiending for their own commissions for their own company).  There are alternatives, but these investment funds are diverse, have a long track record of results, survive market crashes, offer a no-bullshit service with very low commission costs.  A lot of alternatives mutual funds offer their own tools, but one element can be missing, or dulled somehow.

There are also second tier investment firms that modify your portfolio to take a spread over many types of Vanguard fund: like “Betterment” (www.betterment.com).  Yes, you might be able to spread your funds over several Vanguard funds yourself (each fund has different risk/reward profiles): this way you could skip a second tier tool like Betterment altogether.

Should I learn to invest in stocks myself???

Taking on the stock market yourself, and learning to trade stocks is another option that I will NEVER recommend directly, though, like myself, many will mess with it anyways 🙂  Getting a grip on the stock market will take years.  It will also require great risk, and most likely personal investing will lead to either zero gain, or losses.  Even very decent traders can take a walloping, because even just one stock pick that takes a nose dive can erase months of trading gains.  This last sentence is very important and should ingrain as a deterrent for the rest of your life.  However, the story of old Walmart cashiers who are now millionaires due to stock ownership, and the daily tales of stocks that went from $5 to $200 making their owners rich, can make mouths water and can lead anyone to want to give it a shot themselves.  No problem, IF you follow this rule…

When it comes to investing a life savings, you choose smart, slow investment tools.  When it comes to picking individual stocks and looking for a big winner, know that it’s only smart to invest what you can afford to lose.

The stock market is no place for the feint of heart, and in fact, it requires your state of mind to change just to deal with it, because when money is on the line, everything changes with every shift of the market, and with every change to the stock’s price.  Decisions get shifty, and the floor of emotion never stays the same.

When it comes to individuals trying to learn to trade stocks themselves:

90% of them lose money, and eventually have no choice but to quit.
Even decent traders will have to live and breath the stock market 24/7 just to eek out a living making $60,000+ a year.
Out of the 10% of traders who do make money, a lot of them are tied to firms, and have at least $1 million dollars to invest, and have software vastly more powerful than the software you will have access to as an individual.  (they can chase trades, create price motion themselves for manipulation, and also take tiny gains in stock price and still profit because they have more money in the market than you do.)

The point is, only very few people make money trading stocks directly.  Most of them make a modest income, which can be surpassed by your own endeavors in another field or in starting a small business.  The time it takes to learn to trade stocks without losing could easily be spent learning something else that might be more reliable, profitable, and a better, more decent way of life.

That’s the official SAGA stock market primer, think Thunder Dome, think life raft, think about what you can do to enhance your Early Retirement wealth outside of the stock market, and then think safety, like with the Vanguard funds.

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