I was browsing a new finance forum the other day and came across a great question from a self-confessed ‘beginner investor’.
“Where can I learn how to trade with a few thou for the short term (<3mo) with greater than 20% return. I’ve never invested anything. I know that long term investing seems much easier from what i’ve read ie. value investing with stock screens, but what is another good strategy? I am looking for a strategy, teacher, website, anything to start learning, but with a goal of putting money in the market. I’m not interested in funds or managers.”
That, my friends, is called ‘gambling’ not ‘investing’!
You see, when evaluating ANY so-called ‘investment strategy’ you have to consider the return that you can make against ‘market norms’ …
… which is a very simple way of saying “if I can do it … and I don’t have any SPECIAL INSIDER KNOWLEDGE that makes me SPECIAL … then why isn’t EVERYBODY doing it?”
The answer is, of course, is: it’s simply NOT possible … otherwise EVERYBODY would be doing it, already!
… unless you get extremely lucky (which is why what you want to achieve is called ‘speculating = gambling’).
A friend and I had a similar conversation the other day …
He is becoming a professional speaker and consultant; he has already made a great start by writing and self-publishing a book and already has some paid speaking engagements.
BUT, his target is to earn $200k next year … just from speaking/consulting, as a near-beginner!
So I asked him: “How many corporate executives, with expertise in your specific area [customer service] earn anything close to your $200k target right now?”
He said: “Not many … that’s a BIG corporate salary …”
Next, I asked him: “How many of them could write and speak about customer service?”
He answered: “Probably a lot more than you’d expect, especially if they knew that was $200k on the line …”
“Exactly!” I said, almost jumping out of my chair: “So, why would any of them work for somebody else, if they could simply write a book then earn $200k … with the added benefit of lots of travel, flexible hours, and no boss?”
“Hmmmm” he said, his brain obviously (finally) ticking over: “They wouldn’t!”
Which was exactly the point that I was trying to get across:
It simply CAN’T be DONE, by the average person … otherwise, they would all be doing it!
Of course, there are PLENTY of speakers and consultants earning $200k or way more – as there are plenty of people in all areas of ‘investment’ (stocks, options, currencies, futures, real-estate, business, etc, etc) earning outstanding returns even in a crappy market – but …
… they generally have SPECIAL INSIDER KNOWLEDGE that makes them SPECIAL … or, they work MUCH harder than anybody else and/or they get extremely LUCKY …
So, what would you tell our ‘Beginner Investor’?
I would say, when evaluating any opportunity or even your own investing goals and strategy consider:
1. Are you investing – in which case, you should expect ‘normal’ rates of return over the long haul, or
2. Are you really gambling – in which case, the sky is the limit … but, the ground could equally rush up to meet you …
depending upon how lucky you get.
BOTH have a place in your journey towards $7million in 7 years (or whatever target you set for yourself) … it’s how I did it …
But, always be very clear on when and why you are investing and when and why you are gambling.
I’d like to hear your views …