How to Actually Make Money in the Stock Market
A simple guide to investing in the stock market and avoid falling in pitfalls.
I have been investing in the stock market since 2014 and it has changed my life. I love learning about new things and making investments, but I am also passionate about sharing knowledge with others. I really believe that a little bit of extra financial education can make life better for anybody and that is just the purpose of this post: to give you a simple and reliable framework to invest in the stock market, so that you can improve your financial well being. The lessons that I have consolidated over the last 8 years are no different to what great investors have been teaching for centuries now. They are simple and easy to understand, yet one must avoid chasing quick money in order to avoid considerable losses. Let´s begin.
In general, the way to make money in investing is by assessing the fair price of an asset (stock) and buying it for less than that price. In doing so, all you have to do is wait for the market to catch up with reality and eventually, you will be able to sell for a higher price. As soon as you deviate from this rule, you rely on a greater fool buying the stock at a higher price from you. In this way, you quickly put yourself at the mercy of the market. As Benjamin Graham once said:
Whilst no one knows where the price of a given stock will head towards in the short term, the market has a tendency to eventually price things correctly in the long term. Ultimately, when we buy a stock, we are buying a small piece of a business. If the business does well through time, the market will notice and the stock will tend to do well too.
This brings us to two essential attributes of succesful investors:
Patience because investing is a long term game. Once we have identified a stock selling under its fair price and proceed to buy it, we must understand that it may take a while…