People love to be secure and in most cases they like to be able to foresee things at least to a minimum degree. At the same time however they want to make a profit; the more, the better. And unfortunately high profits are usually accompanied by high risk. Feel the dilemma here? Of course, one solution to this dilemma would be to simply put your money in a savings account, collect a little interest and just relax. If this sounds good to you, well, good for you, but don't bother reading the rest of this article.
Which means that if you're reading this, you're probably not satisfied with the meager returns from today's savings accounts and you want to let your money work just a little harder for you. But you would still like to minimize your uncertainty right? Let me give you a prediction with a very high degree of certainty.
If you invest in the stock market you will inevitably:
- make money some times
- lose money some times
That should at least cover the uncertainty factor. Perhaps this sounds a bit simplistic and if it does, good, it should. Because the point I am trying to make is very simple. You just can't make money every single time you make a transaction. Even Warren Buffet did not make money on every investment he has ever made. The best investors and traders in the world lose money on a certain number of their transactions. So don't get too hung up when it happens to you.
Fortunately it's very hard to lose money every time you invest. Perhaps you could find some people who claim that they lost on every investment they've ever made, but chances are they are not telling you the truth. Even they have made money on some of their transactions. However they probably re-invested that money into other stocks that ended up losing money. It's a lot like the guy sitting at the slot machines. After playing for a while the machine starts chucking out a whole bunch of coins resulting in a nice profit. But instead of calling it a day and taking his winnings home, the guy simply keeps pouring money into the machine until the very last coin. Then he goes home wondering why good luck never comes his way.
It's important to face the reality of losing some money from time to time and be ok with it. This does not mean that you should feel ok every time you lose money. Your goal should always be to make a profit. Just be aware of the fact that you can't realistically expect to make a profit every single time. This will ease some of the fears of failing, since losing money on an investment doesn't mean you have failed as an investor. Many people never get started just because they're afraid of losing money. And if they do lose money, they feel they have failed and retreat from the stock market in its entirety, never to return again.
If this hasn't happened to you personally yet, just look around. Can you remember a time when either a colleague or a relative would frequently inform you of their investments? Just about every time you bumped into them they would tell you how good their stocks were doing and how much profit they were making. And then, all of a sudden, they completely dropped the subject. You never heard them talking about it again. And if anyone asked them how their stocks were doing, they would either mumble something inaudible or utter some kind of defensive statement. What happened? They lost their money and withdrew from activity in the market. They have essentially given up, and in doing so, they've lost. Not because they lost money, because they gave up.
If you want to be a successful investor, you can't be like that. The though of giving up can pop up in your mind when things don't seem to go your way, but you should never give in to it. When it comes to success in investing your attitude is more important than your knowledge, just as in many other areas of life. Now, I am not saying that you don't need knowledge. You should try to learn about investing, at least enough to get a basic understanding of how the stock market works. Neither am I saying that it's ok to be an idiot and not learn from your mistakes. You should learn from them, as much as you possible can. Just realize that you will not be right 100% of the times and as long as you're investing in stocks you will not be able to prevent making mistakes.
So before you put your money into the stock market, or any other investment for that matter, remember this: You will win some and you will lose some.
Eri Rahman is the owner of http://www.AllTradingSecrets.com , a fine resources for free training and education in stock trading. He also maintains http://www.AllTradingBooks.com, a very useful resource for smart traders.
Since he is a daily trader, there is no doubt about his experience in stock and options trading.