Tuesday, 23 June 2015

Weekly Investor #2

I see your gambling addiction and raise you purpose

Gambling_stock_market

In my previous article I wrote on what the stock market is and the basics of trading stocks. I also mentioned that this is not a weekly article, rather, I’m a person who checks their portfolio on a weekly basis.

What is a portfolio?

A portfolio is the hand of cards you are dealt. Or in investor terms – a list of all the companies you own shares of.

 

Unlike a casino though, you are the dealer – and supposedly the concept where “The house always wins” should technically apply to you. Except, if that were always the case no one would ever go to the casino – and – as the dealer it is important that you implement a system where you can maintain profitability. To do this you will need to know the rules of the game.

The first and main rule of the stock market is:

Buy Low and Sell High. I really don’t need to explain this… It’s more than obvious, when you sell the same thing for more money then the difference is all profit. If the act of selling your stocks is the equivalent to playing a hand of cards – then – you want the most valuable cards in the game. right? do you? The problem here is the cards you deal yourself may have values – but those values aren’t stamped on the card, if you buy the card with the Apple logo on it, you can argue that this card is the most valuable but what is the likely hood of that remaining the most valuable? and will you be able to sell it more than it is now?

Here is a chart of the most valuable companies in the world – and as big as they are – they seem to vary greatly in the ranking where over a span of 6 years there have been 25 companies in the top 5.

 

Top5MarketCapRanks14

 

Alternatively, the least valuable stocks are not subject to the inverse logic as the saying “the only way to go is up” doesn’t really apply as companies regularly get delisted from stock exchanges for poor performance, and the fail rate of business is shockingly high even in good economies. As I write this I am reminded about this fact as one of the earliest valuations/purchases I made finally got delisted: “Groupe Bikini Village” representing a card in my hand for what must have been near 10 years. I purchased this stock when it was most valuable – and today – it’s worth nothing on the stock market  as it doesn’t meet the requirements to be traded on the Toronto Stock Exchange – I will sourly miss the $200 I invested in that company that deals in product I would never personally purchase myself. (yes, there is a lesson here, but I’ll save that for another article)

Screenshot 2015-06-23 14.21.40

 

The truth is, how you value a company is an investment strategy that you will have to develop on your own, with considerations for risk and hopes for reward. There are plenty of resources for that out on the world wide web – and maybe – I will outline a few in upcoming postings. The real question is:

Why invest with the stock market?

The idea that you are trading with people who share the same interest of making money over anything, even at your expense, is a daunting one. Trading in the stock market can be compared to jumping into a shark tank and pretending you are  a shark yourself. It’s really hard to assume you are likely to win any money in gambling in such a way – and anyone who is ignorant to the risks involved really doesn’t know the stock market.

 

This dark perspective can be applied to every aspect of life though, you don’t really work a job strictly for the love of the job, you do it for money. There is an element of “greed” or in the case of a job “survival” that takes precedence over other factors to what it is you do.

 

No, you’re not a shark.

 

You are simply a person who has been given money – and I hate to break it to you but money means nothing…. until it is spent. The value of the $50 you have in your drawer is determined when you buy something with it. If it gets you a car or a slice a pizza it is then the value of that $50 is recognized.

 

Storing money puts it subject to inflation, as it will buy less and less over time, so it is important that we invest through the purchase of assets. The problem is, there are a limited set of tangible assets an individual can buy – and a crazy ton of tangible liabilities – like that Refresher Tea-Juice thinger at starbucks. I personally find it expensive, and the taste really isn’t there for me. But – rather than treat Starbucks as an individual that is in the business of taking everyones money – and hating people around you because you believe they will remain successful at doing so, the stock market enables you to “Be Starbucks” or at least, be a part of “Starbucks” and take ownership of their success. This inherent freedom both drives the economy and allows individuals of a society to have access to assets/wealth generated from the society.

 

That money you use to buy into the company then is leveraged by the company to invent the next pumpkin spice latte, next generation of consumer technology, go to space, drill for oil, build solar panels or whatever people do next.

 

You are funding the society of tomorrow.

The most interesting thing about this concept is, if you can realistically figure out what the future holds for society – and can identify what companies will bring that future to people, you will likely be rewarded quite well.

 

/Regards

 

 

References:

  1. https://en.wikipedia.org/wiki/List_of_public_corporations_by_market_capitalization#/media/File:Top5MarketCapRanks14.png
  2. http://www.tmxmoney.com/HttpController?GetPage=ListedCompanyDirectory&ListedCompanyTab=RecentlyDelisted&Market=V&Language=en

Twitter

Page Hits