I have a friend who, a few years ago, asked me if he should “get into” stock investing. At the time, I was still wallowing in my losing ways, “gambling” with stocks as I describe in some of my other posts. My paraphrased reply was: ‘No, I don’t think you should. But if you think you really have to, just do the opposite of what I’ve done and you should do just fine!’
What you’ll also read in some of my other posts is how my once-sinking ship has made a drastic turn-around, thanks in large part to subscribing to (and following the advice of!) a couple of stock-investing-advice services with great track records. And so now, if somebody was to ask me the same question, I would answer an emphatic “Yes!” because I’ve learned that the stock market is not the monster so many people make it out to be once they understand it.
So instead of trying to convince you to invest in stocks, I’m going to simply list some of my favorite reasons for investing in stocks. The rest, as the saying goes, is up to you.
It brings out the worst in me
Yes, you read that correctly! I might as well start out with the worst-sounding reason, if for no other reason than shock value! Most people wouldn’t want to be involved in an activity that can bring character traits and emotions to the surface that make one almost sick. But that’s exactly what happened in my early days of being a stock investor.
A meteoric rise in a uranium stock that doubled after only a few months in 2007 showed me how greedy and irrational I was by holding onto it and wanting more instead of carefully learning the nature of the bull market I had jumped into. I then faced the helplessness and despair of watching that stock – and all others in that bull market – eventually plunge well below what I bought them at. Then I realized how ignorant I had been, hoping for the rebound that never came, and wishing I had known about things like the “cutting losses short” idea that I’ve mentioned in other posts.
But the great thing about stock investing – as with life – is that there’s often another chance. There’s usually a chance to learn from one’s mistakes, in this case learning how to recognize and handle our bad character traits and emotions when they’re about to get out of control and lead to a potentially stupid decision.
Lessons like this have not only helped me to make a major turn-around as an investor, but they’ve helped me as a person in general.
I get to own great companies
I’ve been tempted several times in my life to think that starting and growing a successful business would offer me a lot more income and freedom than being employed. However, search as I might, I haven’t been able to find a business that I feel confident in starting. Also, depending on the source, the statistics about 50% to 80% of businesses failing within the first 18 months and 5 years, respectively, are troubling to me.
I reason that I can create a portfolio of quality stocks and have over half of them earning a positive return after 5 years while incurring far less risk than starting my own business. According to my portfolio, I’m already on my way to that goal less than two years in. (Well, two years into being a more successful investor and no longer the dismal failure I had been!)
Most importantly, I’m not sure I would trust my own business instincts very much. However, I sure trust those of Tim Cook, Kevin Plank, Howard Schultz, and Jeff Bezos! These are the CEOs of Apple, Under Armour, Starbucks, and Amazon, respectively. Given the choice of investing my savings into a business of my own versus one of theirs, I’ll choose one of theirs – er, several of theirs! – hands-down.
The awesome thing is, the stock market allows me to do just that! By buying shares in the stock of a quality company, I’m literally a part-owner of that company. I’m also giving a vote of confidence to a pretty incredible business leader, entrusting my savings to someone who has proven themselves wildly successful in running and growing a company.
Yes, my fortunes will rise and fall with that company’s fortunes, but again, would my own company do as well? I also minimize the risk of falling fortunes by first of all investing in a quality company, not one that has no proven track record. I further minimize risk by investing in several strong, growing companies across a broad range of industries, not just a few companies. The risk is practically eliminated if I then hold onto the shares of those companies over the long-term, which some advisories state should be a minimum of 3 to 5 years.
It can be a lucrative hobby
If you had invested $50,000 in Disney (DIS) back in 2002, only 13 years ago, you would have made a nearly 5,400% (54 times) investment on your original money if you held those shares until today. $2.7-million dollars would have been a pretty nice reward for investing in one of the best-performing large-cap stocks over the past decade.
But because I don’t recommend putting all your eggs in one basket, suppose you only invested $5,000 in Disney, and then $5,000 each into nine other stocks for a total of $50,000? Even if the average return of the other stocks was only break-even, the value of your DIS shares alone would now be worth $270,000.
My question is this: If you would have invested $50,000 or $5,000 to start up your own business, can you be sure that you would have made over a 50-times return on your money?
However, nobody can predict the future. You could have invested that money in your own business and become the next Donald Trump, and Disney could have plunged and left you in a fit of rage akin to Donald Duck.
I guess my real point is for you to consider the amount of time and effort that would have been required to multiply the earnings of your business over 50 times versus that of spending a few hours to research then arrange to buy shares of Disney. The power of stock investing has incredibly enormous potential for the patient investor.
Now, given the small amount of time required to research and invest in stocks versus starting your own business, one could consider investing a hobby. And one way I like to look at this hobby is that it’s one of the few a person can have that has the potential of a very substantial return.
Can you achieve the same sort of a return with photography, art, writing, jewelry making, motorsports, or other sorts of hobbies that some people literally pour their everything into? To the point where it’s more of an obsession than a hobby?
There are some people to be sure who have made more than a 50-times return on what they’ve invested into their hobby. However, I would argue that their numbers pale in comparison to patient stock investors who’ve achieved that sort of return, and again the latter have done so involving a mere fraction of the time and effort.
It teaches me a lot about the way our world works
By researching intriguing companies, I end up learning about entire industries, trends, technologies, and many other social, economic, and political factors that I otherwise wouldn’t necessarily be interested in learning about on their own. It this way, being a stock investor is making me a more learned and well-rounded person in many areas of my life.
I just like it, okay?
Yes, this is last main, profound reason I’ll mention about why I invest in stocks – I simply love it, actually. People spend time doing what they love, and this has become one of my main passions, no question – one of my favorite hobbies. I guess I love it so much because I never gave up during the points of greatest despair and frustration, and thus I learned and grew and turned things around.
It’s like the person who’s learning some kind of activity or sport, like skateboarding or skiing. There’s something about it that keeps them wanting to do it no matter how much it can hurt sometimes, a fascination that keeps them drawn to it. And the confidence gained by getting better at it, and getting hurt less, makes it all the more exciting.
And that’s my hope for you. Whether you’ve only been badly burned thus far, or are making a turn-around like me, or if you’ve always been quite successful, I hope that your experience as a stock investor will be one that is fun and exciting and benefits the other areas of your life as well.