Everyone wants to get rich. It is a built-in human desire to want more material wealth, whether it is in the form of goats and sheep in ancient Babylon or in the form of green, cold, hard cash today. Not only this, but people want to get rich quickly, as in overnight or sooner. Most are not willing to take the necessary steps to acquire financial wealth. Many, if not all of us, would rather win millions in the lottery, try our luck picking stocks, or even search for buried treasure than take the time to learn how to become more wealthy, whether by developing skills or investing in the stock market. Let’s not even discuss the stupidity of gambling. Many turn to the stock market to increase their monetary worth and many people’s retirement plans are dependent on it. The thing is, not all that many know what they are doing when they dive into the stock market, which does not bode well for those whose financial well-being is dependent upon it. People search for hot tips from “experts” and for secret algorithms that claim to predict where certain stocks or the entire market is heading. Unfortunately, searching for these kinds of algorithms and formulas is as futile as searching for the Fountain of Youth; they don’t exist. Most fail to realize that a ton of research is necessary before making wise investments. The path to wealth is not easy or quick. Unless you are Kim Kardashian.
The stock market, as we know, is a way for businesses to generate capital, or to raise money, to put it in layman’s terms. Making wise investments, as said before, requires a lot of time spent reading about companies and having a high financial and business IQ. To have a good idea as to how a business may react given a certain set of circumstances, you must be able to speak the language of business, namely accounting, which is expressed in a company’s financial statements. Financial statements indicate how a business makes use of its resources, and being able to interpret them will help you gain a clearer image of how a firm will react to and be affected by a set of circumstances in the economy and whether the value of a stock (business) will go up or down.
Most people know that in order to be successful in the stock market, a great deal of research is needed. However, in a time most people have instant access to a plethora of information via the Internet, cold, hard research is seen as a bore and a chore. Why read a book about anything when you could just read about it on Wikipedia? Why take a look at a business’ financial statements (which are often available online) when you could turn to financial “experts” for advice? The thing is, the stock market is so complex that anybody who claims to be an expert about it is fooling themselves and probably trying to fool you. And, if you listen to what these experts say, you will find that their advice often not well thought-out and that it contradicts the advice of other experts, so you find yourself in no better place than when you started. Do you know how many so-called experts and highly trusted banks and financial institutions were duped into investing in Bernie L. Madoff Investment Securities LLC in the late 1990s to about 2009? Thousands.
This is not to say that all advice from all stock market advisors is unreliable. There are people out there who know quite a bit about the market and much of their advice could help you. The point is to not rely too much on what others say. You must build up your own business and financial intelligence and do your own research on businesses you are thinking about investing in. This is exactly what Warren Buffett does, and this is the reason he is the greatest investor of our time. He makes his money by making well-informed investments in the stock market and in real estate, not by relying on people buying into his 8-step program or subscribing to his hot stock tip service, although he would probably do quite well if he went into this market.
From a young age, Buffett has been involved in a series of entrepreneurial ventures. As an 11-year-old, he bought three shares of Cities Service Preferred stock for himself and three for his sister. He sold chewing gum, Coca-Cola bottles, and newspapers as a child and purchased a pinball machine as a high school sophomore with a buddy for $25, which they placed in a barber shop. Soon after, they owned multiple machines in several barber shops in his hometown of Omaha, Nebraska. These pinball machines taught him the value of owning assets, items that produce cash flow, as opposed to expensive toys (liabilities), which don’t provide any cash flow. During high school, he sold golf balls, stamps, delivered newspapers, and detailed cars, invested in his father’s business, and bought a 40-acre farm. By the time he was 20, he had made almost $100,000 in today’s money. Kind of makes you feel like a failure, doesn’t it?
Besides learning by doing, Buffett has learned by being a voracious reader. He begins each day by reading through five newspapers. He reads 500 pages in a week and spends about 80% of every day reading. Very little of his time is spent actually investing. When asked about his reading habits, he says while pointing to a stack of books on his desk, “Read 500 pages like this every day. That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it." He goes on to say that because of this ever-growing pool of knowledge, he does not make as many impulsive decisions while doing business and choosing investments. Before investing in a company’s stock, he takes the time to find out as much as possible about the firm and how it fits into the current state of the economy. This includes reading everything he can that is relevant from newspaper articles to financial statements.
Besides following Mr. Buffett’s example, there are other ways for you to increase your financial IQ. Reading books relating to business, economics, and finance or listening to such books while you drive or ride the subway to work every day will help you, but there are other ways to build your money savviness. On the Internet, there are sites where you can simulate investing in the stock market. This gives you the opportunity to make investing decisions without having to face real-life consequences of your choices. It’s like investing with Monopoly money. Other games you can play are Cash Flow, developed by the Rich Dad organization and, of course, Monopoly. These games focus more on learning how the real estate market works and can help you teach your kids to be money-savvy. The objective of these games is to use your money to make more money. A $100 investment in a house in Monopoly will result in more rent money going into your pocket every time another player lands on your property. Did I forget to mention YouTube? There is a treasure trove of helpful information to be had on the subject of handling money, whether in real estate, personal budgeting, or buying stocks.
Investing in the stock market is a risky endeavor. Eager, inexperienced investors are like teenage drivers fresh out of driver’s training wanting to drive on the Autobahn for the first time; it may seem cool and exciting to drive without having to worry about a speed limit, but it is really not for the amateur. The stock market is the same. Before merging into your lane, it is necessary to do some research and build up your business and financial knowledge beforehand if you want to experience success. Although you may get lucky and pick a good stock without doing research, this is a rare occurrence. One of, if not the greatest investors in the world, Warren Buffett, is worth billions because he has educated himself every day (and still does) in the realm of business and economics, in addition to being a lifelong entrepreneur. He realized a long time ago that wealth, for most people, is not attained overnight. It was necessary for him to read books every day for years on end, which is something most are not willing to do, especially books about business and economics. Seriously, who wants to spend their day reading George Mankiw or Adam Smith when there’s R.L. Stine and James Patterson? As Buffett said about the type of literature he reads, “Read 500 pages like this every day. That's how knowledge works. It builds up, like compound interest. All of you can do it, but I guarantee not many of you will do it." If you desire to get rich through investing, I advise you to follow Mr. Buffett’s example, but the concept of dedicating yourself to learning can be applied to all fields. Just realize, there are no shortcuts.
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