Note: Paktor is Cantonese for dating.
Are you new to stock investing?
Do you find it difficult to learn about stock investing?
Would you like to know the simplest way to understand stock investing?
If that’s you, read on.
Believe it or not. After years of investing, I find that stock investing is like having a relationship. On one hand, it can be lots of fun, exciting and fruitful. But yet, a relationship to some could be fearful, hurtful and dreadful. Regardless of today, what your marital and financial status is, I’m positive that our needs to be loved and to be rich are universal.
Here, in this article, I like to share 7 key similarities between stock investing and having a relationship. Of which, you’ll get a better idea of what investing is, why people lost money in the stock market, and more importantly, how you may get started in building a profitable stock portfolio.
So with that, let’s begin:
1. What is a Stock?
A stock is like a spouse.
It is like a guy looking for a girl or a girl looking for a guy to start a relationship.
Today, if you ask: ‘What stock should I invest in?’, to me, it is like you asking me: ‘Who should you be dating?’.
So typically, my response is: ‘What do you look for in a relationship?’. From this, your desires for a relationship would determine the hows, wheres and whats to find your next spouse. With that, I would like to explain the difference between stock investing and stock trading:
2. What are Stock Investing and Fundamental Analysis?
If you say that you intend to marry and build a family with your spouse, then, in your case, this is an investment.
When considering a spouse to marry, you’ll look beyond physical attraction. For most, you like to find out his or her directions in life, career, religion, preference and displeasure, family members, and the list goes on. What you look for is one that is dependable, reliable, and has a desire to build a life with you together. In investing, this is known as ‘fundamental analysis’.
When it comes to stocks, we find out the ‘career’, the ‘financials’, the ‘visions or directions’ of these businesses by reading their annual and quarterly reports. In many ways, these reports are like ‘love letters’ which communicate such details to their beloved existing and potential shareholders (or suitors).
3. What is Stock Trading?
In contrast, if you just want to have some ‘fun’, then it is a form of trading.
In such a case, character, life principles, career, dreams, ambition, compatibility, religion and so on and so forth are no longer important. This is because you are in it for the short-term. It is nothing serious. No strings attached. Once the ‘fun’ is over, you move on. Chasing girls is like chasing the highs in the stock market.
So, if you find one who buys stocks without reading annual reports, it is likely to me that he or she is trading or speculating stocks. Definitely, he is not investing.
To me, if you like to find a nice guy or girl to marry, try visiting a church.
But, if you like to have some ‘fun’ with a guy or a girl, you can go clubbing.
4. What is Growth Investing?
Let’s say, you are a nice girl who wants to marry (invest) a nice dependable guy.
You found a guy. He is smart, educated and has good attributes. But at his stage of life, his career or business just started. Financially, he earns and has little. For most cases, he budgets, saves, invests in personal development and career, and he has an ambition or drive to work towards a better future. While he works on his future, he does not have much to offer in terms of gifts, holidays, and luxury items (cars, blinks, bags, watches, and so on and so forth).
Are you willing to date and be married with him?
In the present, he might not offer you much (dividends) as his cash flow is tight. But over the long-term, his (market value) could grow as his cash flow increases due to progression in his career or businesses. Typically, this could take years or decades to achieve. So, the question is, ‘Do you have the patience to wait?’.
If you can and are willing to do so, that is called ‘Growth Investing’.
5. What is Dividend Investing?
Now once again, you are a nice girl who wants to marry a nice dependable guy.
You found another guy. He is smart, educated, and also has good attributes. But unlike the first guy, he had accumulated decades of life experiences and already attained financial freedom. He is rich and wealthy, having houses and cars, a fat bank account, stock portfolios and many other financial assets. He is certainly a cash-cow and definitely loaded.
So, are you willing to date and be married with him?
Immediately, if your answer is ‘Yes, I do’, that is called ‘Dividend Investing’.
6. What to Do in a Market Crash?
Imagine you are a nice girl who is in a relationship with a nice guy (Boyfriend or Husband) and lately, his income had been impacted due to a job loss, a pay cut, a career switch, or a slowdown in his business.
Will you dump him for his reduction in income?
If you are a ‘Player or Trader’, you probably say yes as the guy becomes useless.
But, if you are an ‘Investor’, you would go through the storms (crisis) with him. I would believe that you may even ‘dollar cost average (DCA)’, investing in him as you believe that he could rebound from the crisis and become a lot stronger. So apparently, if your man (stock) is fundamentally good, instead of dumping his in a crisis, it would be more rewarding to support (invest) in him.
7. What is Investing Experience?
Let’s say, you found a person who says that he has years of investing experience in the stock market. So, what does he mean?
Well, in the context of a love relationship, let’s say, we have two guys. Both said that they have years of experiences in a relationship. But, when we look deeper into their relationships, we find that the first guy had dated 10 different girls for the last 10 years. His longest relationship was barely a year and his shortest had lasted just a few months. Today, the first guy remains single and he is looking to find his eleventh ‘true love’.
Meanwhile, the second guy has fewer but meaningful relationships. Over his 10 years, he got married, has a loving wife and beautiful children. Along the way, it may not be a bed of roses but his family held up, sticking through thick and thin as a unit. Today, the second guy finds constant love and support from his wife & children.
So, what kind of relationship would you like to have over the next 10 years?
Is it the first guy? Or, is it the second guy?
If you want to be the first guy, you should try trading stocks. However, if you are looking to build long-lasting wealth from your portfolio, you may consider stock investing.
Obviously, there are many more similarities between stock investing and paktor that I didn’t list down in this article. I shall leave them for another time. Today if you understand stock investing a little better from this article, I believe that I’ve done my job. So moving on, if you wish to learn more about stock investing, the following is a link to a free training session that I’d prepared: