Smart Ways to Grow Your Money from Investing
It’s about 3 years already since i start to learn about stock & financial market. It’s really really a big decision when i decide to learn and be active in this world. I heard a lot of people said “stock market is dangerous”, “stock market is risky”, “forex is gamble”, etc. Yeah…. It can be understand if they said like that. I met a lot of people who lost their hard earned money when playing stocks / futures or forex. The fact is there are also a lot of successful trader out there who can live only from trading / investing. One prove that all people already know, off course the the #2 richest people in the world right now, Warrent Buffet. Buffet didn’t have a business or sell some products. All his money came only from investing. Because of this, i motivated to learn more about this financial market. Until now, i already read hundred of books. I also came to some seminars, active in some forums, reading hundreds of blog, and also trades and monitor the market everyday. I already learn hundred of technique from a lot of great investors/traders in the world. But from all strategy and technique i’ve learned, they can divide it into 4 group strategy, whatever the technique is. They are :
1. Just Buy and Hold
It’s a very simple strategy. Just buy and hold the whole market, you’ll make profit.
2. Value Investing
This is the technique used by Warrent Buffet. He calculates real value of a company. If he think the real value below its current value, he’ll buy. Actually there are some variety of this strategy, but the essence of value investing is to buy when it’s cheap, and sell when it’s too expensive. People who used this technique usually known as an investor
3. Momentum Trading
This is the most challenging technique to learn for traders. There maybe million varety of momentum technique. Momentum Technique usually is a short term trade strategy, but maybe there also a lot of technique that using 1-5 year timeframe as the rule. There are some trader using earning calendars to trade, some using only Technical Analysis to trade (TA itself can divided into hundreds of ways of trade), some using sentiment to trade, some watching seasonal trend and business cycle to trade, some using intermarket analysis to trade, some using currency strength (for forex) to trade, some using economic data to trade, some using news to trade, some look insider information, financial report analysis (fundamental), and many others technique. People who used this technique known as a trader.
4. Income Strategy
This strategy most commonly be implemented on option trading. The beautiful of option is because of its expiration day, so we can collect money even the stock didn’t move at all. Time decay of option is the most important key that make option so unique. Beside option, i also found several who use arbitradge and currency swap in forex. And several using futures to play calendar strategy.
What i want to explain in this post is the simplest technique from above. Yes.. That’s Just Buy and Hold Strategy.
This strategy needs only one skill. That is PATIENT. This strategy can deliver up to 7.28% every year.
This is the yearly profit / loss for 50 years if you buy the whole market (S&P 500) and sell it one year after you bought it
From this data, we can see that from 50 years period, there 36 years that is profit year and 14 years that is lossing year. This means that you have a probability to loss 14 from 50 or about 28%. This means that the chance you can win about 72% (36 of 50). Not bad. But let’s see how if we invest for 5 year period (We sell 5 years after we bought)
So only makes the timeframe become 5 years, the chance to loss decrease into 20% (10 of 50). So we have 80% to make profit, if we sell stocks 5 years later. Now how if we change the period become every 10 years.
Wow the data so amazing. It’s probability to profit become 94% (47 of 50). Its only 3 year loss. Let’s change the time frame become 15 years
Yep. This is what will happen if you sell your shares 15 years later. No chance of losses. It’s 100% winning probability. And the average profit if you invest 15 years is about 175% -> it’s 1.75 times of your fund….
So. Why we have to worry about placing our fund to stock market. Just buy the whole market and wait for 15 years later. It’s no chance of loss and your fund absolutely will grow.