Christian’s posts over the last few days and an article about Warren Buffett got me thinking and I think it’s time for a post to the good ol’ Investor Geeks. I think the morons on TV have gone on long enough and I think we Investor Geeks are on the same page, so listen up!
First of all, the days of lazy investing getting you 12% returns are over, done, finished, caput…shall I say….dead. (I’m The Undertrader! Get it? Dead? Free humor, only available here at IG!) As Mr. B said this week, for the 12% return to continue we’re looking at a 2,000,000 market in a few decades and that’s never going to happen. With that said, the key to getting those 12% returns is going to be active trading.
So, does that mean we should all become day traders? Absolutely not. What it does mean is that we need to manage our money more wisely. You should start today by never calling stock trading ‘investing’ again. You aren’t investing and it’s a bad way to think of the stock market. ‘Investing’ to me sounds like you throw money at it and hope and pray things go well until you need the money. Kind of like how buying a house isn’t really ‘Investing.’ Look how well that investment has worked out for a few million people. ‘Investing’ isn’t going to work. It’s time to start thinking about the market as what it really is….a business.
As soon as you send money to the broker, you’ve opened a business. The first goal is to get yourself some inventory, so you need to buy stocks (or ETF’s if you are risk shy.) Here’s the key to any business. You need to get as much inventory as you can for the lowest price possible, especially if the demand for that item is huge. So, when Disney was at $20, you should have gotten all you could of it. WWE at $10? Yes please! Apple at $60? Oh hell yeah! Fill up your inventory. It’s a business. When Disney got into the $34 range, you could sell half your shares and take that cash to buy up another down and out stock, increasing your inventory while retaining some of your Disney investment. Remember, you don’t have to sell ALL of your shares of a stock, you can sell some, take some profit and use it to buy something else that looks promising.
This is how trading is going to have to work going forward if you want a good return. Build up your inventory and then sell, getting more cash. Buying 100 shares of a stock and holding it won’t work and will never pay off. A key to stock trading is realizing the number of shares and the price you pay for those shares is the #1 most important thing, period. Don’t listen to those numbskulls on Wall Street and CNBC. Find a few great companies that are beaten down, buy as many shares as you can, ride the wave back up to get more cash, increase your inventory. Just like a business.
Invest in peace…