Investing in the stock market is probably one of the best things you can do to achieve financial security and it offers ways to make different kinds of income. Whether that be passive income, growth, or both, how to succeed in the stock market is an important question to consider.
But let’s not make things complicated for ourselves. Success in the stock market is not something extremely hard to achieve. It takes patience, discipline, self-awareness, and knowledge.
If you’re wondering whether now is a good time to get started in the stock market, take a moment to consider whether you’re actually ready for it or not. You don’t want to start investing emotionally and FOMO into or out of the market.
If you are ready to invest, however, there are really only 5 keys you need to remember for how to succeed in the stock market.
Without understanding them, you WILL NOT succeed in the stock market. Understanding and implementing these 5 keys will make/save you THOUSANDS or even MILLIONS of dollars.
Here they are for free.
The Stock Market is Not A Get-Rich-Quick Scheme
Investing in the stock market takes knowledge, analysis, and patience. Patience is a trait that is especially true for those who are passive investors. You can’t jump into investing thinking that you’ll become rich by buying “the next hot stock” and have a 200% return in a matter of hours or days.
This is not something that happens often, if you go into the stock market expecting to get rich in a matter of days, months, or even just one year, you will be very disappointed, and more than likely, you will lose money.
It takes time for stocks to appreciate, that’s just the way it is.
On average, the stock market has an annual return of 10% per year, not accounting for inflation. But bear in mind that this average return does not mean that every single year the stock market will provide you with a 10% return.
What this actually means is that some years the stock market may be at a loss (ie: -10%), while in other years, it can be at a tremendous gain (ie: +30%). Ultimately, all these ups and downs equate to an annual average of 10%. This means that not only must you be patient, but you must be diligent and strong during the downs, and not let the headlines decide whether or how you sell or buy your stocks.
If you sell your stocks during a bear market, make sure it’s due to the conclusions you’ve made after conducting fundamental research. Make your purchase decisions on the basis of knowing that you’re in it for the long haul. Maintain your patience and your discipline, these are lucrative traits of an intelligent investor.
Don’t Be Fooled by ‘Experts’
Achieving a crazy return (ie: +200%) in a small period of time is not something that happens often. I won’t sit here and lie that it’s never happened. But going into the stock market and making this the top priority is very dangerous and has led to VERY negative consequences multiple times.
Unfortunately, these negative consequences happen more often than the random kid who made millions of dollars off a single trade.
Those who achieve this (a rare occasion) are VERY lucky and become well-known for this ‘achievement’. Making people believe that anybody can do it, when in fact, that’s not the case. It takes a great amount of luck to have this happen.
There will always be people and websites telling you that they know who the new Tesla or the new Amazon is, but remember, even a broken clock is right two times a day. If you wish to take their words as a hunch, then conduct the proper research, and know what you’re getting into before you buy whatever stock that is.
More often than not, the ‘traders’ making huge gains are making all this money from fooling random people on the internet into buying their courses, than actually trading.
You’re an investor, and investors don’t let random internet gurus influence their decisions. Be smart!
What Type of Investor Are You?
This is where self-awareness comes into play. Are you willing to sit down and dedicate time to conduct proper research to know what specific stocks you want to be getting into? Or do you have very limited time and a full-time job that won’t let you take the time to conduct that research?
No worries, whether you have the time to research or not, the stock market is still opened for you. You just have to be aware that you’re one of the following types of investors.
Two Types of Investors:
Passive Investor: This is the investor who does not take part in the day-to-day research of analyzing securities, the market, and other types of investments. This investor is better off investing in diversified funds, such as mutual funds, index funds, or ETFs. Where your money is put into a bag of different investments for you, without you needing to conduct any research on individual securities.
I would advocate that you research the specific mutual fund, index fund, or ETF, prior to using it. In such a case, however, that’s all the research that would need to be conducted. You won’t be trying to analyze every fundamental aspect of a company or a market, aspects that are constantly changing.
Active Investor: This is the investor who engages in investing strategies that involve buying and selling securities and other types of investments. They continuously monitor their investments and market conditions to identify new profit opportunities or to prevent potential losses.
These investors are the ones choosing individual securities. As opposed to the passive investor, the active investor will not be using diversified funds more often than not. Instead, they choose the securities they’ll be buying or selling themselves. Please note that to be an active investor, it takes discipline and patience to allocate time to conduct all the research necessary for investment activities.
By knowing what type of investor you are, you can make the right decision of what types of investment decisions you’ll make. For the majority of people, the passive investor route is the best one to take. Buying diversified funds is the most common way to achieve success in the stock market, and it’s also a great way to start!
As for those who can allocate time to conduct the research necessary to choose securities, diversified funds may not be your preferred option.
Ultimately, it depends on you, know thyself.
You Won’t Always Win in The Short-Term
No matter what type of investor you are, you won’t always see the green lines on your side. Sometimes, you’ll see reds, and these are the moments that take the most discipline.
As an investor, it’s important to know that there will be days where your investments will lose money. Whether you decide to solidify that loss by selling it in fear of it going further down, or reverse the loss by simply being patient and waiting for the market (or specific security) to recover is your decision.
Every time your investments are down, look at it as the markets being on sale. Rather than it being a loss, the price to buy the same investment is simply lower, which means it has more potential for growth now!
Don’t let the panic headlines fool you into making emotional decisions with your hard-researched investments. You have your plan, stick to it. As Warren Buffett once said, “Be fearful when others are greedy, and greedy when others are fearful.”
By sticking with it longer, you minimize the chances of loss, just as the chart below shows.
Why long-term investors win
Robert Shiller, Schroders conducted an analysis based on rolling periods for the S&P 500 index over the course of 148 years of data. His analysis found that if you invested for a month, you would have lost money roughly 40% of the time in inflation-adjusted terms. This is equal to 704 months out of the total 1,790 months.
On the other hand, if you invested for 10 years or longer, you would have lost money only about 10% of the time. And if you invested for a period of 20 years or more during this time frame, the probability of losing money was close to impossible.
The only 20-year period where you would have lost money was from July 1901 – June 1921, when the real return was -0.2% a year (essentially no change). While past performance is not a reflection of future performance, one has to realize that during this 148-year analysis: there were pandemics, recessions, nuclear threats, world wars, political turmoil, and pretty much anything else that could spark volatility.
Despite all this, the market always recovered and continued to reach multiple all-time-highs. Those who stayed in it during all this volatility made great amounts of profits in the long-run.
As always, Warren Buffet put it best: “the stock market is a device for transferring money from the impatient to the patient”.
The Key is Consistency!
The best way to invest in order to have great gains and minimize your exposure to volatility is to dollar-cost-average (DCA) your way into the market. DCA is an investment strategy in which an investor divides the total amount to be invested in equal parts in an asset across a periodic time-frame.
For example, you have $10,000 you want to invest into an S&P500 index fund. Rather than investing the entire $10,000 all at once, you divide it up into ten $1,000 groups and invest $1,000/month for ten months.
Now, don’t let $1,000 scare you away. If you don’t have that much available, work with what you have. Especially if you’re young, compound interest is your best friend. The younger you start, the more you’ll make.
Set a dollar amount to invest every week, two weeks, or month, and invest consistently. Don’t let the market volatility stop you from your consistency.
The way I do things is whether the markets are up or down, I invest consistently. Even when the COVID-19 pandemic hit the US economy, I maintained my investments and continued to buy in.
If you follow these five keys, you will live much more peacefully as an investor. Not stressing about the headlines, knowing the intrinsic and/or future value of your investments because you’ve allocated time to research, or you simply invest in your diversified funds.
Following these keys will allow you to invest intelligently, rather than emotionally. If you want to start investing but don’t have a platform to start on yet, I have made in-depth reviews on investing platforms that I personally use to invest. Feel free to take a look at those!
Is there anything you would add to this list? What are your thoughts and experiences? Let me know in the comment section below!