We advocate starting all actions NOW.
1.) Start changing your thought process, NOW!
2.) Start studying wealthy habits and people, NOW!
3.) Reduce personal liabilities (Debt), NOW!
4.) Save money, NOW!
5.) Invest, NOW!
6.) Reinforce your thought process, NOW!
7.) Repeat until perfected.
8.) Teach your children or others.
9.) Reinforce your thought process, NOW!
10.) Repeat until perfected.
Let’s discuss number 5.) Invest, NOW!
The simplest, most accessible form of investment are stocks and bonds.
Many folks don’t understand, and therefore FEAR, the stock market and it’s perceived complexity. Admittedly, a deep-dive into the Stock Market can reveal complexities that rival theoretical physics written in Latin being read aloud by a semi-literate hillbilly with a lisp. Yeah, you know something is happening but it’s damn hard to follow it all.
But Choosing Wealthy is about reducing complexity and helping the average Joe become a wealthier Joe.
Which brings me to toilet paper.
Toilet paper is a requirement of life within our culture. It is neither good nor bad but always useful in the right situations. To be without toilet paper is beyond inconvenient. To have too much is great but having too little? A pain in the ass.
Imagine you go to your local store to purchase something you really want. Ice Cream, Soda or just some Asparagus because you are the one person on planet Earth who craves Asparagus over Ice Cream. Hey, it can happen. While you’re at the store you notice a giant display of toilet paper with a sign that reads:
TWENTY ROLLS FOR A $1.00!
Being the frugal person you are, you know that last time you bought toilet paper it was about $1.00 for 8 rolls. Twenty rolls for the same price as eight rolls is a great deal. You’ll save money on something that has no expiration date and is always useful and in style.
Is that a complex scenario? I didn’t think so…
How the Stock Market works, nutshell version.
Imagine you own a piece of paper and you want to share pieces of paper with other people. How would you do it?
Take your paper, get a ruler and divide the paper into, let’s say, 1,000 smaller pieces of paper.
You can now share 1,000 small pieces of paper with other people.
Piece of paper you own= Corporation
Pieces of paper you shared= Shares or Stock in the company.
A share (or stock in) of a company is nothing more than owning small fraction of whole company. When I purchase an individual stock, I own a small fraction of the company.
A small fraction of their sales, their debts, their assets, their returns and their net profits.
A small fraction in the whole damn shooting match.
Your piece of paper has a value because all the people and companies and investment houses that purchase and sell shares consider your piece of paper to have value. Part of its value is real, underlying value. Let’s use Coca-Cola. Coca-Cola owns the brand name Coca-Cola and all the factories that make Coke and all the trucks that deliver Coke. All the machines that make Coke are worth X but the brand name itself is worth 25X! Coke is consider non-cyclical because its sales rarely change based on economic factors. People always buy it. Coke always makes it. Its underlying value is consider very stable.
Warren Buffett is considered one of the greatest Value Investors out there. Click here to understand what he does and what Value Investing means.
Your piece of paper receives some of its value based on assets, brand names and other intrinsic values found in any company.
3.) Prices change
Remember the movie Men In Black? Will Smith and Tommy Lee Jones are sitting by the river just after Smith found out about all the aliens walking around unnoticed. He asked why all the secrecy and Jones replies with one of the best descriptions of Mankind ever uttered on-screen:
A person is smart. People are dumb, panicky dangerous animals and you know it.
People is the plural of a person. I am smart. You are smart. Put a million of us together and we are prone to fear and ignorance of epic proportions.
The Stock Market responds to Fear and Greed as much, if not more than, the intrinsic value of any stocks being traded. People get excited when a stock price rises. They buy more hoping to cash in on the ride up. Brokers typically encourage this behavior due to a commission-based pay structure in many large investment houses. So Joe Average keeps buying hoping it will continue forever…or at least until the Market closes at 5 pm EST.
That’s Greed, pure and simple. Coke is not suddenly building more factories or buying more trucks or, in most cases, selling more soda on that particular day. Nope. Someone started buying more and the perceived value of the stock began to respond. The more other people want something, the more value still more people will put on it. See the above quote…
The value holds until the Market closes. Joe is happy. Overnight, however, he gets nervous and thinks the stock is probably over-valued. He sends a text to his broker to sell all his shares tomorrow morning. That same night, 100,000 owners of Coke stock do the same thing.
The next morning, the price plummets due to the effect of selling. More people are selling the stock and so the price begins to drop. Again, did Coke change anything overnight?
Fewer trucks? Did you or anyone you know suddenly decide to never buy Coke products again? Nope.
This is Fear. I’m scared the price will continue to drop so I’ll sell now, Now, NOW!
When poor people see this they see chaos, uncertainty and shenanigans they can not comprehend.
When wealthy people see this they see opportunity, value and a fairly predictable turn of events.
The poor person sees the toilet paper on sale as a deal but declines in the Stock Market as a sign of certain financial doom.
The wealthy person sees the toilet paper on sale as a deal and sees the Stock Market declines as a deal.
If Coke is really worth about 30 bucks a share (numbers made up) and is currently selling at 3 bucks a share (numbers made up), shares in Coke are one hell of a deal!
Wealthy people are fearful when everyone else is greedy. (When the price was going up, wealthy people, by and large, would’ve avoided it.)
Wealthy people are greedy when everyone is fearful. (When the price drops, wealthy people would wait until they perceive a bottom price, then buy the stock.)
Choosing Wealthy means, in part, understanding the role Fear and Greed have in determining Stock Market prices and the price of other investments. Real Estate will often go through the same cycles.
Quick real world example. The US Stock Market is currently hovering in record territory. 18,500+ consistently. Here is what some of the truly wealthy are doing with their money.
Buy toilet paper when it’s on sale and Choose Wealthy my friends...