Lesson #1: Don’t depend on the stock market to “make” money.
I suppose because we (society/pop-culture) tend to associate the wealthy with their financially-savvy ways (and, top hats), we also often think that the wealthy got there by betting money in the market. Afterall, stocks, bonds and other market-traded investment instruments are used by wealthy people instead of regular ol’ bank accounts. Right?
What’s misleading is that the wealthy don’t need a 100% return nor do they expect it. Athough all investors hope to make huge returns in the market, “wealthy investors” (those with > millions in investable assets) are primarily concerned with:
a) having their overall portfolio perform better than the market;
b) PRESERVING the wealth they worked hard to achieve (for future generations); and
c) the appropriate investment vehicles for their tax-bracket
d) …other reasons…
That said, please note there’s a difference between buying ten shares of a company you know little about because your brother’s friend’s dad’s sister’s mailman had a hunch.
The information-age has led us to believe that the availability of information will help us make huge returns in the stock market. Being intelligent in another field, and supplementing your intelligence by picking up a “dummies” book on options strategies is not a worthwhile investment strategy.
There are multiple factors each money manager/registered representative considers when developing investment strategies. Not to mention it’s their job to watch the market night and day (sometimes even while they sleep).
Unless you – the non-investment professional – can dedicate as much time in researching the markets as trained and educated analysts whose jobs are to research companies, industries, the economy, regulations, tax laws, et cetera…, (not to mention having access to people on the trading desk floors, technology, and many staff members who have immediate access to all necessary information immediately), please don’t make the mistake in assuming you’re as qualified as an experienced investment professional in selecting investments that optimize the upside while limiting the downside.