How to make money?
Investors enthusiasm.
Two topics impact everyone, whether we are interested in them or not: love and money. Sometimes health too. Therefore, in what industry does someone with no college degree, no training, no background, no formal experience, and no connections can massively outperform someone with the best education, the best training, and the best connections? Most will struggle to find an answer. It’s basically simple. The answer is Finance or more precisely Investing or How to make money? Is as fascinating as important to all of us. Everyone thinks about it but no one could accurately explain it rationally. Finance is so different. It’s guided by behaviors. Might make sense to me but might make no sense to anyone else. Why do people bury themselves in debt? Nobody got the right answer. Greed, insecurity, optimism…enthusiasm.
As we should know enthusiasm on Wall Street almost always leads to disaster. Also, a high IQ or higher education is not enough to make us better investors. Do we know that a fund run by a huge guild of mathematicians, IT guys, and Nobel Prize economists lost more than $2 billion in weeks on a big bond bet? Do we know that Sir Isaac Newton owned some shares in a company in 1720, dumped them making a good profit, and then in a wild enthusiasm came back losing almost 3 times the money gained? In short, investing is not based on intelligence. It’s more about emotional discipline. Not losing self-control. A good investor dreads a bull market and the death of it is not the bad news everyone thinks. More than that some speculation is necessary and unavoidable. Even if this should not be taken as proof we believe that on the stock market or digital assets nobody in the last 50 years successfully gain money by only “following the market”.
When investing, it’s important to differentiate between fads and trends. It might be difficult at first but after some tries, we can find some answers. Fads in their journey have a life cycle: they emerge and gain popularity. Then the price gets to the maximum level. Interest suddenly fades, and prices crash. Pokemon was a fad. Ok! But how do we differentiate a fad from a trend? Simple! Trends have utility. Pokemon was fun to play, but that’s it. We can’t do anything with it; have no practical use. By contrast, some trends of today like digital assets and blockchains have thousands of commercial uses. So if it’s a trend we should go into it? No and Yes at the same time. An investment is more of a pendulum that forever swings between unsustainable optimism and unjustified pessimism. How our investments behave is much less important than how we behave. If we become critical thinkers and make distinctions between facts and faith with patient confidence we can say Yes to trends. We will get advantages in even the worst bear markets. If we are not careful and always follow risks with no margins on safety we can say a firm No. Taking some foolish risks can put us so deep in the hole that it’s impossible to get out later without losses. Luck is more important than skill. But behind it, there must exist a background of preparations and disciplined capacity.
An investor calculates what his action would be worth based on value. A speculator gambles so the value it’s based on market prices. Like horse betting or casinos, speculating can be exciting or even rewarding if we get lucky. Gambling instinct is part of our human nature. But it’s damn riskier and not comfortable because Wall Street or Las Vegas calibrate the odds so that “the house” always prevails. Thus, we should check the rules of “the house” and play by them to transform the odds in our favor. Speculation becomes dangerous the moment we begin to take it seriously. The value of any investment should and must be a function of the price we pay for it. Otherwise is not feasible. So we should not try to judge the present by past returns. The only indisputable truth is that the past teaches us that the future will surprise us even more. New research shows that brains are designed to perceive trends even where they might not exist. Thus if a stock goes up a few times in a row we expect it to keep going flooding our brain with dopamine or “natural high” and we become addicted to our own predictions. But if they drop brain generates fear and anxiety in a process called “fight or flight” like in a fire alarm panic. In fact, psychologists have shown that the pain of financial loss is more intense than the pleasure of the same win.
Indeed the investor’s worst nightmare is not the numbers but himself. His skill is to find discrepancies between the value of the business and the price of small pieces of that business on the market. Good investors exploit these discrepancies. Therefore, we need to control our expectations using realism not fantasy and our risk by deciding how many assets to put at hazard on the market. Investing is not beating others at their own game. It’s about controlling at ours. The whole point of investing is not to earn more money than average but to gain more money to meet our needs. Who cares if we lost or won? Nobody. All we should know is that our investment earned enough so we don’t need to think more about How to make money...
This article is not a recommendation to invest in anything. Each individual’s situation is unique, so a qualified professional should always be consulted before making any financial decisions. Any references to past performance, future projections, and statistical forecasts are no guarantee of future returns and performance. Hence, anyone acting based on this information does on his/her own discretion. Thus, work here is entirely reader supported so If you enjoyed reading it please consider sharing it around and SIGN up here to get all my future articles directly to your inbox. Also if you feel like you can throw some money into the tip jar gladly will be accepted. Thank you for the support!
