Hello, gentlemen. Today the topic of discussion will be money. Particularly, how to invest in the stock market.
On January 6th, 2016, I recommended that you buy ABX (a gold mining company’s stock). I believed that due to the declining American economy, and a number of other factors that I will discuss today, the stock was poised to shoot through the roof.
Here is a screenshot of my tweet from January 6th, 2016:
Fortunately for everyone who follows me on twitter, I was correct. If you had bought ABX when I tweeted about it, you would have nearly tripled your money.
How to Invest in Stocks
As you can see by the pictures above, I bought my shares of ABX on December 21st of 2015, and sold them on May 5th of 2016.
I know the quality of the pictures is kind of crappy, but it’s still there. As you can see by these pictures, I bought stock in ABX when it was a measly $7.38 per share, and sold it when it was nearly 3x higher at $19.32 per share.
All of this happened in a matter of months—think about it: how was I able to see that this was coming so far in advance? Well, I’m going to talk about this today.
The stock went up 268% in just over 5 months. To put this in perspective, the average Wall Street broker’s gains are roughly 8-12% PER YEAR.
So how did I do it? How did I know that ABX would explode in such a short period of time? The same way that I find hidden crypto gems.
Basics of Investing
First off, there’s a few different types of trading: short term, medium term, and long term.
Before you even begin trading the stock market, you need to figure out which one you want to specialize in—each has its advantages and disadvantages, so pay close attention.
Short term trading is also called day trading, or intra-day trading. This is when you invest in stocks and sell them several hours later.
In order to make this strategy work, you need a very large amount of capital. It also takes a lot of skill and perseverance, and most people that try this end up losing money.
Then, there’s medium term trading, sometimes called swing trading or inter-day trading. This is how I trade Bitcoin, personally speaking.
The time frame for this type of trading is anywhere between a few days to a few weeks; in other words, you invest in stocks today and sell them a week or so later.
This is a bit easier to do than day trading, but still takes a good amount of underground knowledge and a high level of understanding of the industry you’re trading in.
Long term trading, is basically when you invest in stocks for more than 3 months. You may hold onto a stock for 50 years before you sell it, or you may sell it after 5 months (such as I did).
Long term trading, in my opinion, is the easiest to learn and is also the least risky. Why? Because it’s based more on a company’s actual leadership, competitive advantage, and market strategy, as opposed to the fear and greed of the masses (which often causes short term spikes and plummets).
Although these things can be profitable, and I will discuss them later, as a beginner to trading stocks it’s best to focus on longer term strategies.
How to Trade Stocks
Before you can invest in stocks, you’ll need to get an online broker. This used to be done in person, or via a direct line to your broker, but now there’s a ton of ways to buy and sell stocks online.
Brokers usually charge a small fee per trade, and there’s a whole lot of complicated shit that I could get into, but I’ll keep it fairly simple.
Here are a two decent online brokers:
Then, beyond this, there’s something called a trading platform. This isn’t necessary unless you’re doing short term/medium term trading, but it’s basically the computer program that you use to create graphs, analyze the market, and place trades.
Trading platforms are only for guys that need every slight edge they can get, because half a second could be the difference between gaining or losing $100,000.
If you’re just doing long term trading, however, (which I recommend when you’re first starting off), then you don’t need a trading platform.
Just sign up for a broker, place a trade, and watch your stock market account grow more and more each day.
My Stock Trading Strategy
In a nutshell, my strategy for trading comes down to this: have a bunch of stable investments, and take large gambles on stocks that will likely skyrocket within 4-12 months.
I prefer to divide it up like this, because the stable investments add, just that: stability. The large gambles, on the other hand, if done correctly, offer you the chance to gain massive amounts of money in short periods of time.
Lots of Stable Investments
A stable investment is one that has a proven track record of going up, and surviving economic depressions (so it’s been around for at least a few decades). These are the types of investments that you want to hold onto for at least a decade, maybe even until you retire.
This would be stocks like Activision-Blizzard, Walt Disney, Under Armour, Starbucks, and Coca Cola.
All of these stocks that I just mentioned have been around for at least two decades and have been shown to consistently deliver good results.
Having stable investments is important, because any time you invest in the stock market you’re taking a risk. Plain and simple. But you can minimize this risk by investing in stable investments.
The problem with just investing in stable stocks, however, is that they only go up like 10% per year. If you want to see much larger gains, like doubling, tripling, or even quadrupling your money every year, you need to take some large gambles.
Here’s where you make the real money. A large gamble may end up losing you a lot of money, but if you’re smart you can minimize the risk of this happening.
You may gain 30% in a few months, you may gain 175% in a few months, or you may only gain 15% in a few months.
The point of the large gambles is to take an educated guess and invest in stocks that you believe will go up very soon.
Otherwise, you’ll just chug along with measly little gains of 10% a year—and while a patient 18 year old may be okay with this, I’m not. I want to make money online, and I want to make it fast, so here’s my strategy.
The Secret to Investing
I’ve thought about making an eBook about this, because it’s actually a very difficult, complex process, but I’m going to try to simplify it here for you.
Keep in mind that it’s more of an art than it is a science, but basically it comes down to one thing: predict where the market is headed and invest in whichever stocks will benefit from this.
There’s a number of factors that you should take into consideration when doing this:
- Global events
- Economic changes
- Industry disrupting technology
- Potential wars or revolts
- General opinions and trust or distrust
From here, you should be able to isolate an industry that will excel over the next 4-12 months. It’s not that hard once you get the hang of it.
This could be the weapons industry (if you predict an upcoming war), the solar power industry (if you predict a huge increase in oil prices), the precious metals industry (if you predict a loss of faith in the US dollar), or any other major industry.
Then, once you hone in on an industry, try to find the leader in that industry, or even better, the competitor with the best position to capitalize on the changes within the next 4-12 months. Then, invest in that stock. To help clarify this strategy, let’s talk a little bit about how I honed in on ABX.
How I Pick My Stocks
I started researching for a “large gamble,” around October of 2015. What direction was the world headed in?
What major events will occur within the next year, that I can capitalize off of? These were the questions that were circling around in my head.
After a lot of research, I started to put together a general picture of the world at the time:
- Increasingly cynical attitude towards the US Dollar
- US Economy becoming increasingly unstable
- It’s been 7 years since the last recession (recessions tend to happen every 7-10 years)
- The upcoming election was almost a joke; other countries were laughing at us
What’s the common thread here? America’s future doesn’t look too bright.
So, I thought to myself: what industry typically thrives in times of great economic uncertainty, when the US dollar’s value is going down? The precious metals industry.
Why? Well, because if people don’t feel like their dollars will be able to hold their value, they buy silver and gold, thus increasing the price of silver and gold, thus giving the precious metals industry more profit.
So the question then, became: “Which company within the precious metals industry will outperform the rest?” After looking around at a whole bunch of different silver mining companies, gold mining companies, and silver/gold streaming companies, I landed on ABX.
Even though I think investing in Bitcoin is better than stocks, I still do trade stocks from time to time, because you can make a lot of money doing it.
As a side note, I also invested in SLW stock (a silver streaming company) which also went up a shit ton. ABX was the big winner for me, though.
So—how did I land on ABX? There’s a ton of other companies in the precious metals industry that I could’ve invested in…why ABX? Several reasons:
- Their average cost to mine 1 ounce of gold is roughly $830. This is much lower than the industry average, which equates to higher profits.
- They own a large number of mines, particularly in Nevada, which equates to easier logistics and lower shipping/storage costs.
- Their stock was at an all time low.
Based on this information, ABX seemed like the logical choice. In fact, their stock will probably continue to rise for the next 6-12 months (as I predicted in my tweet).
The only reason I withdrew my money from the stock in May was because I decided to do something else with it. If you saw my tweet and bought the stock in January (or bought it now), I’d recommend holding onto it for a good while.
Risk vs. Reward
Now, of course, I could have been wrong. ABX could plummet tomorrow, but I don’t see that happening barring some sort of catastrophic event.
It could have dropped way back in February—my analysis could have been dead wrong. Maybe the company could be exposed for insider trading and illegal activities tomorrow, and the stock could plummet down to 25% of its current value. I don’t know.
But the point is that you have to take an educated guess.
It always pisses me off when people say that the stock market is like gambling. Yeah, it is like gambling—if you’re an idiot.
If you have any semblance of a brain, you can easily stack the odds in your favor. You don’t even need to be right all of the time, or even HALF of the time. You just have to take a massive bet when the odds are 95% in your favor. And for ABX, the odds were 95% in my favor.
It’s about understanding the risk to reward ratio. What do you stand to gain from this investment? How certain are you that it will go up? If you’re extremely certain, then I’d take the bet. If you’re wishy-washy, I’d reconsider. It’s really that simple.
Fear vs. Greed
Most people are driven by fear or greed. That’s why most people lose money when they invest in stocks. “Oh, it’s all a gamble—you can never win! You can never predict the future!” they’ll say.
No, you’re just a dummy who makes financial decisions based off of primal emotions rather than a logical analysis of your reality.
The biggest enemies to your success in the stock market are fear and greed. It’s no coincidence that Warren Buffet (the billionaire investor) said to “Be fearful when others are greedy, and greedy when others are fearful.”
In other words, when the masses are extremely greedy, all buying up a stock, it’s likely going to create a bubble. When the masses are all selling off their stocks, driving the price down further and further, it’s a great time to be greedy and snatch up stocks at a low price.
I literally never make my investing decisions based off of mainstream sentiment. That’s because mainstream financial advice (TV shows like Mad Money or NBC stock market reports) appeals to fear and greed.
If you want to be successful in the market you must learn to think logically and buy based off of a stock’s current price and potential.
There will be some times where you’re wrong. Sometimes you’ll miss a key piece of information.
Sometimes you’ll underestimate a certain event’s potential to change the world. Other times, you’ll just be flat out wrong.
When it comes to cutting your losses, this is my rule: if the stock goes down 25%, sell it.
Yup. Sell it. It can be tempting to say “Oh, but I spent so much money on it! Let’s just hold on a little bit longer…it’s bound to go up!”
This is a fool’s game. Soon enough you’ll be down 65% holding onto it, because it’ll “Go up any day now!”
Just cut your losses while you still can. Learn to protect your wealth.
Einstein once said that “Compound interest is the eighth wonder of the world,” and he was right. Compound interest is basically the idea that if you gain a certain percentage your first year in the market, the next year your gain will be a certain percentage of that new amount.
Let’s use an example to clarify. Say that Jon invests $15,000 in the market and follows my advice. He invests $10,000 in stable stocks, and the other $5,000 in “large gambles.”
Then, every month, he invests another $200. Sound reasonable? It is. If you have a decent paying full time job, this is easily within your reach (granted you save up for a while for the initial $15,000 investment).
In 25 years, Jon would have $6,833,095.90 in the bank. Almost 7 million dollars, from just a meager $15,000 investment plus adding $200 a month.
In 30 years, that 7 million would be nearly 21 million, and in 40 years, it’d be nearly 200 million dollars. Do you see why it’s so important to start investing at a young age? How is this possible, you might ask? Let me show you.
With simple interest, if you gain 20% per year on $10,000 you’ll gain $2,000 per year. So in 10 years, you’ll have the initial $10,000 plus $20,000 which equals out to $30,000.
With compound interest, however, the first year you’ll have a balance of $12,000. Then, however, you’ll gain 20% of $12,000 which equals $2,400. So just from 2 years, the difference between simple interest and compound interest in this example is $400.
Then, the next year, you’d gain 20% of that $14,400 which would put you at a$2,880 gain for that year as opposed to the $2,000 gain from simple interest. After 10 years, instead of having $30,000 (from simple interest) you’d have $61,917.36 from compound interest.
Do you see how quickly this can add up? Over the course of decades it can literally be the difference between having a few million dollars in savings, and having over a hundred million dollars in savings.
Here’s a compound interest calculator for you to play around with. The lesson here is get into the stock market early as fuck, and invest more each month/year if you can afford it.
Keep in mind that any and all advice I give is not guaranteed to work for you. It’s worked for me pretty well, but it’s just my experience.
I wholeheartedly believe, though, that if you follow my advice, you can pull home an extra 25% or more per year.
Yeah, some years might be lucky for you. Some might be unlucky. But overall, your money will start to work for you, rather than you working for it.
The younger that you can start getting into the stock market, the better. But if you’re 35 or 50 or 75, don’t sweat it. You can still make some very nice gains in the market at any age.
I urge you to read some books on financial prosperity, so that you can start the process of educating yourself. Don’t just leave here and forget about this article—we’re talking about your financial future, man!
As always, if you guys have any questions, be sure to let me know. I hope you guys enjoyed the article, and I’ll see you next time.