Tuesday, April 29, 2014

Fad of the Day Stocks and Why You Won't Make Any Money ...

The other day a friend shared a "High Times" article about marijuana stocks.  This is what I told her ...

I'll warn you, I don't think they will pan out.

It's like we think it's our chance to be Steve Wozniak, Steve Jobs or Bill Gates.  Except we forget.  None of those people bought a penny stock.  What they did was build something that had only been a dream in their imagination and a company grew out of it.

At the same time, I think most of us spend at least a short time thinking that way.  We think of the stock market as a place where if we could only get the right tip, we would buy the next Google and ride that rocket to wealth.  While there very likely could be somebody who bought GOOG at the IPO (Initial Public Offering) and who still holds it and a very impressive return, almost no one actually becomes wealthy that way.

In fact, let's take apart the Google myth right now.  Before there was an IPO, private venture capitalists were the shareholders.  The first outside funding for Google came from a $100,000 contribution from Andy Bechtolsheim, co-founder of Sun Microsystems.  Needing more funding, the next rounds came from Venture Capital firms Kleiner Perkins Caufield & Byers and Sequoia Capital.  Five years after that first contribution, Google announced their IPO which was offered at  .....  $85/share.  (Google Info as per Wikipedia.)

Not exactly that penny stock you were dreaming about, is it?  In fact, if you didn't know what you already know about Google, the IPO happened today and you had a chance to buy shares, would you? At $85/share, you probably still wouldn't.

That's because it isn't about Google or the money.  It's about the dream and the dream isn't really about wealth.  It's about recognition.  It's about finally being recognized and rewarded as the special deserving individual you instinctively know you are inside.

Like an over-the-top wedding, it is about one supernova moment in the sun.  Your moment.  Your day.  Even if it is just a millisecond, it is the superlative you think will redeem the rest of your poor life.

I'm sorry to burst your bubble, but life doesn't work that way.

Let's tackle your life's redemption first.  Nothing.  Not a soul mate.  Not buying Google at $85/share or AAPL at $22/share (AAPL's IPO price.)  Not a bigger house, nicer car or a speedboat will make your life seem like shinola if it currently feels like sh&t to you.

Happiness is an inside job.

I'll tell you something I recently learned that helped me.  I always looked at the world ... let's say like a big oatmeal cookie.  I would look at it, full of hunger and anticipation, and spot all the little negative raisins.  So I was constantly noticing and focusing on all the things that made the world less than.  Why does this have to be here?  Why do you have to be like that?

The Law of Attraction teaches us to focus on what we want NOT what we don't want.  Besides that, life is just much more fun if you are noticing the good stuff.  So now, I just assume the world around me is probably having a little bit of a rough day.  I assume someone will launch into a negative rant at any moment and I don't take any notice.  (I try not to.)  Instead, I notice positivity.  Or, I ignore the raisins I'm not so fond of, and when I discover a chocolate chip there instead, I celebrate.

The bigger the celebration.  The better I feel.  The bigger the celebration, the more my good mood seems to rub off on the people around me.

It really is a beautiful thing.

Now, let's look at actually buying stocks.

Once upon a time, someone told me that "day trading" is roughly like walking behind a cart carrying a huge palate of coins and the trader is stooping, picking up and pocketing anything that drops off.  While a not very glamorous, yet colorful metaphor, it is also quite accurate.  Like any other way of making money, trading stocks is only inherently fun for somebody who is naturally attracted by it.  All others will find it dreadfully boring.   That's why wealthy people tend not to invest on their own.  It's why they have financial managers.

Remember being in school?  Remember the first time you played volleyball, basketball, tennis or football?  Some of those sports you wanted to play all day every day.  Other ones you would have paid money for an excuse not to suit up.

Life, and for that matter love, is about about finding the things that make you excited to suit up.

If you can always be excited by your partner, even when they have a bit of snot outside their nose or are being a bit of a a$s, there is an excellent chance you will always love them.

Confucius said, "Choose a job you love, and you'll never have to work a day in your life."

There is a way to make more money than you do out there.  You just have to figure out what it is.  That soul mate?  They're out there too.  The perfect job.  Everything you want is waiting, but you have some leg work to do.

Find out what you love.  C'mon.  Think about it.  There is NO bad there.  You try things and just decide whether or not you like them.  Your life's job, becoming YOU, IS a dream job!

Meanwhile, if you are like me and believe that trading stocks will be one of the tools in your "I love doing this" arsenal.  This is how I began.

1.  Accumulate $6000.00 of disposable wealth.  This simply means $6000.00, you don't WANT to lose, but would not feel like the world was ending if you did lose.  Don't give me any of that "if I could do that, I wouldn't be looking for help" nonsense.  You save the $6000.00, paycheck by paycheck, a little at a time.  If it is something you really want to do, you will set the money aside with the same enthusiasm you have when spending it on shoes, games or DVDs.

2.  Deposit the money in an online, low cost, stock trading account.  I use Scottrade.

3.  This is backtracking a bit, but while you are accumulating the wealth, begin researching stocks.  Aka:  read my blog, watch Mad Money with Jim Cramer or a similar show, watch CNBC, Fox Business or Bloomberg.  Seek out things around you that can teach you about stocks.  (Or whatever else you are gearing up to try and see if it is one of the things you love.)  DON'T get emotionally hung up by fretting that you can't buy this or that right now.  Don't watch it with an eye to every opportunity that you are missing.  Opportunities are like ocean waves.  There are always more building up on the horizon.

4.  I'll explain more in depth in a future blog entry, but at this point, just follow these rules:

* Do not buy any stock for less than $6/share.

* Do not buy any stock that is traded as an OTC (Over the Counter) or a Pink Sheet stock.  Only buy stocks traded (assuming you are an American) on the NASDAQ or NYSE.  If you don't know what those are yet, you haven't been reading enough.  If you are from another country, here is Wikipedia's list of stock exchanges:  http://en.wikipedia.org/wiki/List_of_stock_exchanges

*Limit yourself to 5 or 6 different names.  Each name should come from a different type of business.  For example:  A tech name, a product you would buy at your grocery store, a business you do business with (I like to buy names that make me pay money to them that give dividends.  It's like making them pay me to pay them.)  Some sort of financial.  The last name, number 5 or 6, should be that wild hair Google/fad shot in the dark.  A completely speculative name that you believe is a great idea.

*Don't buy all those names in one sitting.  If you truly end up loving the stock market, you will enjoy building your portfolio and choosing those names just like other people enjoy picking bridesmaids or Fantasy Football teams.

*Businesses report their earnings on a quarterly basis.  Be aware when your companies are reporting and keep your eye open for anything that may indicate things have changed in your company's outlook.

*If any of your stocks drop 8% or more.  Sell them.  We'll talk about how to refine your stock purchases and highs/lows later, but keep in mind, the only reason anyone lost all their money with a stock like Enron, is because they never sold it.  If they had sold after losing 8%, they would have still had money to aim at some other name.  They would have been holding that other name while watching other people moan and cry.  When I started trading in the stock market, I began to look at money like a big pool of water.  I can choose a name that makes my pool smaller, but as long as I don't overstay my welcome, I can always move to another name that will make my pool larger again.

*Just like gambling in Vegas, if you haven't sold the stock, you haven't banked the gains.  If you ride fictitious ticker symbol up from $6/share to $600/share, you will never have actually gained any of that money if you ride it all the way back to $5/share.

*Unlike gambling in Vegas, never "double down" (or buy more shares of an already losing stock) expecting things to get better or change.  It is just begging to lose more money than you already have.

*Never resist selling a stock because you have made a profit and you don't want to pay the tax.  That is essentially telling the universe you don't really want any money.

*Some places, including CNBC when they have their portfolio competition, let you build a Fantasy Stock Portfolio and track your progress.  That can be an excellent way to test whether or not you enjoy the stock market without actually putting any money at risk.

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