There are many who get rid of the world order imposed on us from birth to death and dream of a different life. Some people realize that the world is not as much as the square meter of the city they live in and want to explore the world, while others want to spend time with their children and loved ones. While everyone has different dreams, no one wants to work until they die, just to make a living.
The retirement age is 65, the average life expectancy is 74.
Does it make sense to work like a slave for 40 years to live 9 years of scarce conviction? – Elon Musk
If you want to evaluate your savings in the stock market and achieve financial freedom in the near future, this article is just for you.
We have compiled for you the information that Warren Buffett, who earned his entire fortune of $ 92.4 billion from the stock market, learned when he was still in his 20s. This basic information, which you wish you had known before, can open the door to a new life for you. All you have to do is read our article to the end and with all your attention.
Here we go.
There are millions of people who regularly invest in the stock market and achieve success. These people adopt some basic and simple principles based on the experience of successful traders on countless stock market cycles.
While intelligence is an important factor in any business, you do not need to be super smart for your investments to be successful. We can explain that everyone is at a level where they can make money in the stock market with the following words:
If you can do fifth-grade math, you can easily invest and make money in the stock market.
Is It Difficult to Make Money from the Stock Market?
Everyone is on the lookout for quick and easy ways to be rich and happy. We constantly think that we will turn the corner from the short way and that our lives will change by buying a lottery ticket.
Although some people get rich with the lottery, only fools or desperate people use luck as an investment strategy.
If you don’t believe that you will be killed by lightning in the street, you should not believe that you will win the lottery and become rich.
Because the probability of both happening is the same.
On the road to success, we often ignore the strongest factors at our disposal. These are the magic of time and compound interest. Investing regularly, avoiding unnecessary financial risks, and ensuring that your money works on your behalf for years or even decades are the most guaranteed methods for you to increase your assets.
How to Make Money from the Stock Market? Tips and Tricks:
1. Set Long-Term Goals
Why do you want to invest in the stock market? Will you need your deposit cash after 6 months, 1 year, 5 years or more? Are you investing in retirement, buying a house, or bequeathing it to your children?
Before investing, you should know your purpose and in what period in the future you will need this money. Knowing when you need this money in the future, you can calculate how much you need to invest and how much income you need to earn from your investment to get the result you want.
The expansion of your portfolio depends on three closely related factors.
- Your invested principal.
- Your annual net earnings on your principal.
- The amount of time you will invest.
If you don’t plan to hold a stock for 10 years, don’t even think about holding it for 10 minutes – Warren Buffet
2. Understand Your Risk Tolerance
Risk tolerance is a psychological trait that is genetically inherited, but it can be positively affected by education, income, and well-being (as these increase, risk tolerance increases) and, of course, negatively with age (reducing risk tolerance as we age). Your risk tolerance is how you feel about risk and the level of anxiety you experience when the risk occurs. In the psychological sense, risk tolerance is defined as “the extent to which a person will give up what he has for a better outcome”. In other words, everyone’s risk tolerance is different, and there are no criteria to be considered the “right” balance. Some may risk 1000 TL for 100 TL, while others may risk only 100 TL for 1000 TL.
In addition, risk tolerance is also affected by the way the person perceives risk. For example, flying or driving in an aeroplane was considered very risky in the early 1900s, but as travel by plane and vehicle became more frequent, this risk began to be accepted by people. In contrast, many people today think that riding a horse is too risky because of the danger of falling because we no longer see many people riding horses around us.
The phenomenon of perception is especially important when it comes to investment. As you learn more about investments (e.g., how shares are bought and sold, how much price changes there are in general, and the liquidity of investments), you’ll be taking on less risk than you thought before making your first investment. As a result, when your investment intensity is less, your concerns and risk tolerance will not change much, because your definition of risk perception will also change.
By understanding your own risk tolerance, you avoid investments that would cause you concern. In general, you should not make an investment that will disturb your sleep. Anxiety stimulates the feeling of fear, which causes you to have an emotional reaction (rather than a logical response) against the being causing the stress. In situations where financial uncertainty prevails, investors should remain calm and follow analytical decision processes.
3. Control Your Emotions
The stock market is not a place where those with an IQ of 160 beat those with a 130. If you can do 5th-grade math, you can be successful in the stock market. Of course, if you are aware of your mood and don’t let it guide you.
Even if you’re the smartest person in the world and lack emotional discipline, the stock market may not be very lucrative for you. The best example of this is Isaac Newton, who is known as the smartest man in the world.
Newton also invested in a trading company called South Sea after it was rumoured that he had received a license from the state at the time and that his earnings would multiply, and he soon doubled his money by 4 and sold his shares. However, when he saw that the stock continued to rise, he could not stand it and bought it again at $ 900 and this time he used leveraged trading to earn more. Although the prices continued to rise for a few days, one day the price of the stock suddenly fell from $ 1500 to $ 150. As a result, the famous scientist lost all his wealth and then said this famous word about the incident.
I can tell you exactly which planet, which star, when and exactly where it will be, but never the madness of people.
The biggest obstacle to the gain in the stock market is that people cannot control their own emotions and consequently make logical decisions. In the short term, the prices of the companies reflect the combination of emotions of the entire investor community. Prices usually tend to fall when most investors start to worry about a company, in the same way, that prices are likely to rise when investors start to think positively about the company.
People who have negative thoughts about the market are called “bears,” while people who have the opposite are called “bulls.” The constant battle between bears and bulls during working hours is reflected in the ever-changing prices of securities. These short-term fluctuations are governed by rumours, speculation and hopes (emotions) rather than a logical and systematic analysis of the company’s assets, management and plans.
Prices that fluctuate contrary to our expectations create tension and insecurity. At these times: “Should I sell my shares to avoid losses? Should I keep it in the hope that prices will rise again and buy more?” Questions like these occupy our minds.
Even if prices go in the expected direction, the following questions come to mind: “Should I sell before the prices fall when I have made a certain profit from the stock I bought? Or could the prices go up even more, so should I keep it? “Especially when we constantly follow the prices, such thoughts rush to our minds. When our emotions are the main factor in our actions, our decision is likely to be wrong.
You shouldn’t be sad that the price of your stock is falling, and you shouldn’t be happy that it’s rising. When you achieve this, your emotions are under control.
If you have a good reason to buy a stock and your reason makes sense, short-term and sudden changes in price shouldn’t affect you. However, in case you realize that your reason is a wrong decision, you should also plan when you will sell what you have. In other words, you need to have an escape strategy in case you lose money.
Be sure to read: 8 Pitfalls You Should Avoid About Investor Psychology
4- Do not follow the market and prices daily. Don’t Buy-Sell.
Watching Bloomberg TV every day or following stock market papers online; creates a perception in your mind that the stock market is an exciting “100-meter running race”. Yet the stock market is more of a long marathon than a short-running race. The important thing is not to be the first, but to reach the destination line.
“Would you be able to happily go on with your life if the price of your house was broadcast on the internet or on television for pennies every day?”
“When you didn’t control the value of your home minute by minute, would you prevent it from gaining or losing value?”
So why would you act differently for stocks?
In an experiment conducted in the 1980s by Paul Andreassen, a psychologist at Harvard, it was observed that investors who were informed about their shares on a daily basis earned only half as much as investors who did not receive any information. What do you think could be the reason for this?
To answer this, we can look at the following studies in the field of neuroscience.
According to a groundbreaking study in the world, if an event is repeated 2-3 times in a row, our brain waits for this event to happen later, and if this expectation is realized, dopamine, the happiness hormone, is secreted and our brain is filled with happiness. In the same way, when a stock rises for 2-3 days in a row, we think that the continuation will come and if it happens, we will be extremely happy. This causes us to depend on our predictions.
When the feeling starts to drop, the amygdala part of our brain that manages fear and anxiety starts to work. This part is the part that produces the “fight or flight” response, which is the survival impulse found in all animals. As our stocks fall, we get scared and worried. For this reason, we want to sell the shares and get rid of this feeling.
In addition, according to Nobel Economics Prize-winning researcher Daniel Kahneman, we react to losses 2 times more intensely than gains. No matter how happy it feels to win 1000 TL, losing 1000 TL is at least 2 times as painful. Therefore, in a market where prices are falling day by day, we cannot prevent ourselves from selling our securities at very low prices. However, the fact that a stock that we trust in the long run and whose price we know is cheap has fallen for a while does not change anything. On the contrary, it has created a better buying opportunity by getting cheaper.
Given all this, buying and selling can seduce your mind and cause you great loss. So don’t follow the market daily and don’t buy-sell!
5. Start with the Basics
Take the time to learn the basics about the stock market before making your first investment. In exchange, your focus should be on companies rather than the entire market. Because market movements are unpredictable. There is only so little time when the stock movements of all companies can be in the same direction, even if the stock market is in a big decline, there is always a rise in the stocks of some firms.
Here are some areas to consider before making your first investment in hiring:
- Understanding Companies. How does the company make a profit? Where does his wife come from the most? How does it stand out from its competitors? How long can it maintain this advantage? How satisfied are their customers? How does he spend his earnings? How to invest in order to grow, what and how to invest? How much does he owe? etc. you should be able to give clear answers to questions.
- Financial Metrics and Definitions. You need to know the metric definitions such as Price/Earnings ratio, earnings per share, profit margin and annual growth rate. You should know how these are calculated and have the ability to compare different companies using metrics and other important things.
- Popular Methods in Stock Selection and Timing. You have to understand how fundamental and technical analysis is done, how they differ, and which ones are more useful in each stock market strategy.
- Exchange Order Types. You need to know the differences between stock market orders, stop orders, orders to prevent losses and the like used by traders.
- Different types of trading accounts. Although cash is the most common, margin accounts are required by regulations for various transactions. You need to know how the margin is calculated and the difference between the margin requirements.
Information and risk tolerance are interconnected. As Warren Buffett said: “Risk arises from knowing what you are doing.”
6. Diversify Your Investments
Experienced investors like Buffett avoid stock diversification by doing all the research necessary to identify and quantify their risks. Andrew Carnegie is credited with saying, “The safest investment strategy is to put all your eggs in one basket and watch that basket.” It can be risky to think like Buffett and Carnegie without having enough knowledge and experience, especially in the early years of your investment career.
The most popular way to manage your risk in the initial phase is to diversify it. Prudent investors own stocks in various firms, in various industries, and sometimes in various countries. In this way, they prevent a possible bad event from adversely affecting their existence.
Must read: Strategies That Make Warren Buffett a Billionaire
7- Do Not Take Investment Advice From Anyone
Stock market; Rolls Royce is the only place where people who drive a Lamborghini get advice from those who ride the subway every day. – Warren Buffett
Never take investment advice from your environment and people you don’t trust.
In psychology, our brain overvalues what is perceived as secret or confidential information. For example, if you overhear someone inside the company who claims to know someone and that prices will increase too much, you may be easily affected and want to buy stocks. Never ignore such sensations.
Every investment is individual. When it comes to your future and investments, you need to take the lead. That’s why you should constantly educate yourself and take responsibility for your investment decisions. Of course, you can get support from professional investment experts. They can inform you about many things. Of course, if you ask the right questions.
Your main goal should be to find companies that have been growing steadily over the years and whose current price has remained cheap for what it is worth.
Be sure to read: How Warren Buffett Earns in the Stock Market
8- Be a buyer when you fall, a seller when you rise
I buy something, whether it’s a stock or a sock, when the price is down. -Warren Buffett
If you have very good stocks that you intend to hold for many years, every price drop should be a source of joy for you. Why?
Wouldn’t you like it when the price of the food you’ve eaten all your life goes down? So why should you feel sorry for the shares you can buy more when the price drops?
So over time, things can go wrong and prices can go down. If there is no deterioration in the main indicators of the company, you should see this as an opportunity for further purchase.
The smart investor is the one who buys from the pessimist and sells to the optimist.
It should not be forgotten that the market overreacts to events and news. He is either very optimistic or pessimistic. Prices can therefore go down to the bottom or go up to the ceiling. For example, during the internet crisis of 2001, the Amazon’s share price melted from $ 130 to $ 6. But there were no difficulties in the company’s activities. The company continued to grow and multiply its revenues.
Jeff Bezos explains:
Amazon’s share price dropped from $130 to $6 before our eyes. But things were going better than ever at the company. Our sales were multiplying and we were continuing to grow as a company. So we just kept focusing on our business.”
In the years that followed, the price of Amazon stock soared to over $3,000.
Don’t feel 30% smarter when the share price goes up 30%. Because if it drops 30% the next month, you’ll have to feel 30% dumb this time. – Jeff Bezos