The Investment Mentality
Anyone’s sudden investing mentality in the market was (mostly) a peer-pressured, excited, spur incite which was obtained by knowing success stories of market tycoons, counsels, and sometimes through descended growth (to get back).
Majorities use the market like one does in the gambling; putting the money based on what’s fancy in it, and drop it right after mere profits. Some use those for tax evasions. And only a countable number use it as an opportunity to get into a business and became (highly) successful in the future among 1000s.
Why only a few are named successful? Why not everyone who’s dropping a share in a mere profit? What happens to those, and their profits?
To understand the answers one has to remember a term- Speculators.
A speculator’s market
Speculators are those people who play in the market (often) for mere profits. This set of people even has analysers and ingrates, but their actions on a stock would be rapid. They play for quick returns and have no ambush to let their stock live for some more time; owing to the fear of downfall, and distrust in a company’s future policies.
For example- In this crisis time (due to the Coronavirus), roaming around often is highly discouraged. So, people rely on packaged foods and supplements like never before. This causes even the wax-coated noodles’ and other unhealthy food company’s share price to surge in a short time. But as soon as the routine gets normal, these will once again revert.
An analyst knows this; he/she buys or stays out of it after analyzing the time constraints and market conditions. But a speculator will buy these shares, hearing about the surge (and its possibilities), and would sell if the prices started falling irrespective of the time for its demand.
So, a speculator’s investments are completely based on either what he/she hears, or for rake-off, and completely not based on the analysis.
The mistakes of investments
Is this (being a speculator) a crime?
We can’t say, but kind of. Earning is everyone’s priority; Speculators are also doing the same. Then, the problem is with the aftermaths of what they are doing in the market.
A share’s price is determined by demand & supply concept. If a firm is doing good, then the intrinsic value of its stocks would increase; resulting in high demand for its stocks. By the speculative measures, the value of the stocks would increase beyond the intrinsic value (inflated stock prices).
This will make the firm to push itself beyond limits. If it succeeds, then the value would become reasonable. If not, then it may lead to severe drawbacks in the firm’s future.
Also, some policy announcements by the firms/governments seem unreasonable, or highly valuable even before the establishments are fluctuated by these speculators. This results in unreasonable graphs during the closure of that financial year.
These are the problems of society. There’s one more major unaddressed problem — These speculators own nothing after their trades, literally, even after mere profits. Sounds confusing?
Say someone bought a share for $15, and he/she sold that for $18 in 6 months. If you calculate the interest it has generated for 6 months + brokerage — (minus) the inflated/deflated currency value in that period, you could notice that- the amount acquired would be lesser than $16.
Also, the share value has increased. So, a share was lost with worth lesser than that it was bought. The result- loss.
Then what’s the way to avoid these? What is described as safe investments? How to find it? How to calculate it? Are some basic questions that might arise if you thought the alternatives.
How to be a wise Investor?
Before knowing the ways to be a wise investor, let’s all be clear with “Who’s called wise investors?”
An Investor is a person who’ll look himself as one of the owners of the firm that he’s investing. Relying on what the firm is producing instead of the profit it will make shortly.
No passionate business person would ever start a firm to make money. To them, it’s all about the product’s delivery. This exact attitude should be carried on while choosing a firm to invest the hard-earned money.
If this attitude is carried on, then the approach towards investing changes one completely; making more professional views on stocks with well-planned analysis. With this attitude, you should be aware of the world’s direction of growth (like where & how the firm’s tech and products will be after 2–5 years).
How to make wise Investments?
Every investment should be made based on 2 primary rules:
1. Calculation & Analysis
2. Gut guided investments
Calculations & Analysis is the easiest way possible than any other methods regardless of the hype that’s given to it. It just should be made on the Intrinsic value of the stock and the firm’s future policies respectively.
Intrinsic value = (past year’s revenue) or (assured current year’s revenue) / total no of stocks outstanding
If you’re finding it difficult, then collect the firm’s past 3-year growth map and calculate the average difference in the share’s price. Most probably the difference will be similar to the previous values.
In both ways of calculating the intrinsic value, make sure to know about the firm’s stand on its future products and policies, and the type of demand it will create in the future (you cannot expect a mid-segment gasoline car to be driven in the 2030s).
Gut based investment is for the people who’re confident in a firm’s future tech irrespective of the current inflated/deflated price of its stocks. Though it is an easy option and a commonly available method, not everyone could afford it.
So, if you’re sophisticated in investing irrespective of the price, then you could go for it.
The returns % should be considered with the competitors. Very low, and even very high returns percentage can leave its investors at stake. Also, if it doesn’t cope-up with the yearly inflation, then it’s a waste of time and money.
While doing this article, I’ve prepared ways/guidelines to invest in a bank. It is coming as a separate blog. So, stay tuned.