The stock market continues to do what it does best; fluctuates. If you turn on the financial media, they are also doing what they do best, fueling the emotions. A few weeks ago, we talked about three ways you can react to the market's ups and downs; staying blissful, acting like a maniac, or investing intelligently. Nitin Pachisia, managing partner of Unshackled Ventures and our latest guest at Renegade Investors podcast have shared with us that the worst thing you can do is to let your emotions guide you away from your strategy. Some of the best investors in the world will tell you that their worst investments were when they went off strategy.
If the stock market's fall is throwing you off of your strategy, remind yourself that the stock market on average falls at least 10% or more every 11 months, historically. And, listen to the latest episode of Renegade Investors podcast.
We've got something for you if you are new to investing!
Are you still here? Didn't you click to listen to the latest episode of Renegade Investors? It's okay! Since you are here, let me share one more thing with you.
Many of our users who are new to investing have asked us how to get started with long-term investing. That's why we launched season one of Stock Card's YouTube channel. It's going to have eight episodes and we just released episode one. Each episode will cover one key aspect of what it means to be a long-term investor. From things to know to tools to have, we've got it all covered. Here is the first episode:
Stock Card Product Update
Com'on! I told you about the latest edition of Renegade Investors podcast, and you didn't leave. I shared the news that we just launched Stock Card's YouTube channel for our new investors, and you are still here! Alright, one more thing to share, and this time, you'll be definitely gone! deal?
Last week, we released a major update to Stock Cards. As you know, each publicly traded company gets a Stock Card that automatically collects and simplifies all the information you need to invest for the long-term without spending time researching allover. One of the key questions Stock Cards answer is whether the stock of a company is overvalued or undervalued? With the latest release, we simplified the data points under the Fair Share Price section of all Stock Cards. The update removed complex data points and included the most common indicators of whether a stock price is overvalued or undervalued. Examples are Price to Earnings ratio, Price to Sales ratio, Price to free cash flow ratio and their comparison with the weighted average value for the S&P 500. The fair share price section will continue to get updated automatically twice daily (once the market opens and once the market closes in the U.S.). However, the data is now sourced from our data partner, YCharts, and not via Finbox.io. Look up the Stock Card of your favorite companies and check the updated fair share price section.
Have you watched Skyscraper, the movie? My husband and I watched it last night. While the film is no Oscar-winning masterpiece, it marks an iconic power transition in the world that stock market investors should not ignore! Dwayne Johnson, The Rock, is in the movie, so are a rich Chinese billionaire, calm and logical Chinese police officers, sexy Chinese criminals with attitude, and of course, there is a larger than life skyscraper reaching for the sky in the streets of Hong Kong. And, let's not forget, Baidu, which is the search engine they use in the movie to "google" things! The movie is a familiar story being told by new kids in town. Have you noticed it?
On today's edition of Stock Card Weekly, we are discussing the lesson that Skyscraper, the movie, teaches us about the stock market!
As one article on Forbes.com reported, Skyscraper ended up with $65 million in North America. With a reported budget of $125 million that would generally be considered a failure. But, the movie scored $48 million in China and a total of $75 million overseas during its first weekend. According to Business Insider, when the movie opened in China, it ended up as the highest grossing movie during that week, globally. If Hollywood was and still is how the United States grabs the hearts and minds of the people all around the world, China is not too far. Even if stocks of the Chinese titans such as Baidu, Tencent, and even YY have had a lousy summer, and their prices are at the lowest levels you might have seen, the movie, Skyscraper reminds us that a new kid is in town. Don't get bogged down with the short-term ups and downs. Ask yourself, which direction is the world's money flowing toward?
If and when you are ready to bet on China, here is an arrangement of Stock Cards for your viewing:
Talking about new kids in town, we just launched our podcast show!
It's called Renegade Investors. We've already released three episodes. Renegade Investors is a show that rebels against the conventional wisdom of investing! My co-founder and our COO at Stock Card and I are the co-hosts of the show. Every week, we take a common and well-accepted investment wisdom, tear it apart and explore the alternative ways of thinking about investing. We also like to showcase other “renegade” investors who are going against the prevailing wisdom of investing in their unique way. A new episode will be available every week, and soon you can subscribe and listen to the podcast via the most common podcast platforms you usually listen to your podcasts. Until we get the approval from iTunes and other podcast platforms, you can listen to the first three episodes on our blog or find all three episode here below:
After weeks and months of an upward climb, the stock market did something that took many new investors by surprise. The market declined by about 5%. The impact on some specific set of stocks was a bit more drastic. According to CNBC, 52 of 65 companies in the S&P 500 tech sector were down by at least 10 percent compared to their highest price in the last year or so. How you reacted to the market's decline says a lot about who you are as an investor. Don't let this opportunity go to waste.
On today's edition of Stock Card Weekly, let's dig deep into three possible reactions you might have had. Of the three possible reactions, which one is you?
If this Stock Card Weekly is the first time you hear about the stock market decline, chances are that you fall in the Blissful category. Let me tune it a bit down because unless you live under the rock, there is no way you've missed the financial media, Twitter, Facebook, LinkedIn and other social media's trumpet of doom. Even if you knew about it, if you didn't open your brokerage account or the application where you monitor your investments to see what's going on or read at least 2-3 articles from sources you trust to understand what's going on, you are definitely a blissful investor.
What to do now? Being blissful is not necessarily a bad thing. What to do next depends on your current investment status. If you are already an investor and you have a recurring or an ongoing process for investing, and when you heard about the stock market's decline, you shrugged the news off and said to yourself, "Meh, who cares, I'm in it for the long-term, my automatic investment will go through as scheduled. Let's move on!", you are a good kind of a blissful investor. Congrats! May you prosper in your blissful ways of living!
On the other hand, if you shrugged it off because you don't have the habit of keeping yourself informed and you don't have a natural curiosity to learn as an investor, you are most likely missing a lot. Your kind of blissfulness may help you slide through life like the Buddha, but don't expect to generate wealth, or retire early, or have money required to fund a side-hustle. If any of those things are among your goals, you are not on the right track! Start learning about how to invest for the long-term.
Did you log in to your brokerage account or the application where you monitor your investments at least once a day? Did you read several articles, jumping between articles on Seeking Alpha, Bloomberg, CNBC, etc. like a headless chicken? Did you ask yourself "should I sell?" 10 times every hour? Did you cuss the Gods and the lady luck for ruining your plans for buying a vacation house? Did you ... you get my drift. You are a Maniac. And, I don't mean it in a good way! Look, historically speaking, on average, the stock market goes down 5% or more three times a year (Source). You either don't understand how the stock market works or you invested the money you need for your day-to-day life, and that makes you vulnerable to the natural behavior of the stock market. It goes down, and when it goes down, it always goes down faster than when it goes up. You probably already knew that there is a chance for your investments to go down, but you don't know how to control your emotions.
What to do now? Study the history of the stock market. Being a maniac, or being a semi-maniac is not a good indicator. Use this opportunity to learn about yourself. Understand what causes you to lose your sanity, and start working on it. This is a priceless learning opportunity for you to learn how the stock market works and to what extent you are in control of your emotions. Stock market investing is 10% about the numbers and 90% about having the emotional stability to listen to what the numbers tell you.
Oh well, hello to our intelligent investors. Let me guess what you did in the past few days. You saw the news of the market decline through whatever routine you have to keep yourself informed about the world. Most likely you didn't do anything on the first day, beyond reading a few articles from the authors or sources you trust to understand what this is all about. Once you realized the downward trend is meaningful enough that some very well-managed companies are getting closer to becoming undervalued, you took the watchlist out; the watchlist you keep on the side to go bargain shopping whenever the stock market does what it naturally should do, going down every now and then. You used the cash you have on the side for such occasions and hit "Buy" a few times, not too many, because the decline is only about 5% or so. That's it, and you moved on with your life. If that's you, congratulations!
What to do now? Nothing! Blaze on! And, thank you for being a Stock Card member! Keep looking up the Stock Card of the companies you are interested in, and discover new ideas through Stock Card portfolios.
Before I let you go, let me leave you with a few facts and information about the stock market that I remind myself everytime I hear about yet another stock market doom and gloom. This is a research done by Morgan Housel, a partner at Collaborative Fund and an ex-analyst at The Motley Fool. Learning from the stock market history since 1915, on average the stock market behaved this way:
Understanding these numbers, at least, should give you an informed peace of mind that long-term investing works, regardless of what happens in the short-term. There is also another way of looking at these numbers, but not many have the emotional intelligence to read these numbers that way: There are only a handful of times in your life that you can go real bargain-shopping in the stock market. Don't let it go to waste!
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The first time I started working out as a CrossFitter, I was amazed at how comprehensive the movements are. What keeps me going back to CrossFit workout is the extent by which the programs are designed to create overall fitness for the everyday people. From nutrition to agility, strength, flexibility, and functional movement, the CrossFit founder, Greg Glassman, has included all such elements into his manuscript to achieve overall fitness. The definition of fitness by him in 100 words is the most straightforward but comprehensive plan I have ever come across in my pursuit of fitness. Such has inspired us at Stock Card HQ to come up with a definition of our own. Of course, this is not a definition of physical fitness. Instead, it is the most straightforward but comprehensive definition we have come up with for financial and investment fitness. Similar the definition of being fit, being an intelligent investor is a combination of several elements from a healthy attitude toward money to a logical way of thinking about investment.
On today's edition of Stock Card Weekly, we are exploring what it means to be an Intelligent Investor!
Number one: Spend less than what you earn and invest the difference
It's straightforward. You can't become an investor unless you save some money to invest. It doesn't have to be a significant amount of money. You can save five bucks? Start from there. Create a habit of finding a way to spend just a bit less per month and allocate money to your investments. It's the same as allocating budget for shopping.
Number two: Don't carry high-interest debt.
This is very obvious. If you have debt, especially if you pay high interest, such as credit card debt, most likely the interest rate is higher than the return you can earn through your investment. Before you start investing, take care of that debt. Paying off the high-interest debt is an investment by itself. You are patching the holes in your pocket that is draining your wealth.
Tip: You can use the process you created to save regularly to pay off your high-interest debt. Your welcome for that tip! We are here to serve! ;)
Number three: Don't invest the money you need for your day-to-day life
Investing is similar to becoming fit and building muscles. It takes time. You can't go to the gym this week and have six packs the next week. Same for investing. When you invest your money, you can't expect to become a millionaire the next week and have the money to pay your rent and go on a vacation too. Don't invest the money you need for your rent, car payment or buying food the next week or the next month. Make sure you have enough money for living your normal life before investing.
Number four: Understand the difference between trading and investing
In your circle of friends, you probably know a friend who lost 10,000 dollars in the stock market when he was 22, and he had to move back in with his parents and other such stories. While those stories are true, those are mostly related to people who wanted to trade and not invest. To explain it in the simplest terms, when you trade, you are all about charts and stock prices. You try to use whatever you can to predict the future prices; maybe in the next 2 minutes, 2 hours or 2 days. That's just extremely fast-pace, too technical and one might even say delusional. Some studies show, at best, the success rate of trading is less than 5%.
There is another way of participating in the market. It's called investing. You don't care about the price movements in the short-term. Instead, you focus on the strength of the companies you are investing in. Similar to how venture capitalists invest. They are not investing because the valuation of the company is going to go up in the next 2 hours. They pick a good team, a good product, a company with indicators of success and let the company grow for years before they consider selling. You can participate in the stock market just like you invest in a startup.
Number five: Invest most of your money in well-managed companies in growing markets and hold it for as long as the company stays well-managed and is growing
Let's take an example. You have a friend. He is a chef. He is very talented, and he finds a great location in the touristy part of the town to open a new restaurant. You are investing in this restaurant because of his skills and the location he found. You see a lot of potential in this opportunity based on facts and information. You give some money to him, he gets money from his parents or his savings and there you go, there is a restaurant. Let's say, after the restaurant becomes a hit, one weekend, not too many people show up. Are you going to sell? No! You didn't invest in the restaurant because of its sales in one weekend. You invested in this opportunity because the facts and information you have about the restaurant make you believe in the long-term potential of the restaurant. Therefore, you'll stay with it for at least a few years. Same goes with long-term investing in other things. Invest based on the long-term potential of the companies. Write down the reasons you have invested in them and hold your investment for as long as such reasons are valid.
Number six: Understand that the news and financial media is mostly to entertain you, not to inform you
Of course, you need to be up to speed about the companies you invest in, about their products and market opportunities and how the company is operating. However, keeping up with the daily news is not the right tool to do so. The daily news is not designed to inform but rather entertain. The headlines are designed to make us show an emotional reaction and get hooked to the news just like any other show. If you understand the incentives behind the financial media, you really should step back, shut down those news notifications and not make investment decisions based on those.
Number seven: Look for investment ideas in how you live, where you work and what you consume
Investing for the long-term is about investing in great companies that we consume their products, and they are an essential part of our lives. Many products we eat, drink, buy and use are so crucial to the lives of millions of people that over the course of years they become great investments. You don't need to look for the needle in the haystack or go after some hidden gems to be a successful investor.
For most people, there is a long list of clear and apparent investment opportunities before they even need to spend a minute to find hidden gems.
Alright, there you have it. Those are the seven things that define being an intelligent investor.
Before I let you go, one last thing. Have fun investing! You get to put your money to work even while you are binging on Netflix. Investing for the long-term gives you a chance to gain financial independence and not to live a 9 to 5 job all your life. So, become an intelligent investor, have fun while doing it and be proud of being on the journey to your financial independence. Maybe retire early!
That's it! Will see you next week!
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