There are two types of people: people who will read through this entire post and put themselves on a life-changing path towards generational wealth by understanding the essence of investing, and people who simply won't read this post. This post may be lengthy and abstract, but I guarantee you that comprehending the concept of what it means to invest, and how to do so, can change your life forever.
This is not financial advice. This is for educational purposes only.
Capitalism is much simpler than you think. The goal of the game, as the name suggests, is accumulating as much capital as possible. Interestingly enough, there are only three ways to achieve this goal, and if anyone tells you otherwise, they're either lying or they're a crook. The method is simple - you need to own the three means of production: land, labor, and capital.
Land: Only 30% of earth's surface is covered by land. Land, contrary to common belief, is rare in the sense that it's limited. If you own land, you can have factories and houses built on your land, through which you can receive rent. This was also prevalent in the past where aristocrats allowed peasants to farm on their properties, taking a certain percentage of the crops that were harvested without even breaking a sweat.
Labor: When you own labor as a means of production, it essentially means that you run a business. What this implies might not be intuitive, but it simply means that you're paying money to buy someone's time. Time is a resource that is much more important than money. Money is infinite, and can even be printed. As for time, both Jeff Bezos and a freshman at college both get 24 hours a day. The difference between the two, is that Jeff Bezos can pay the freshman and hire him to work on whatever needs to be done. Essentially, Jeff is paying to buy the freshman's time, a limited resource.
Capital: Capital is the magic sauce that allows all of this to happen. You can buy land, buy someone else's time, and even buy companies that do all of the above on your behalf. But, capital is no good if you don't make that capital work for you. You can lend capital to someone who needs it, and receive interest payments. In this case, interest is simply understood if you think about it as the cost of borrowing money. The name of the game is to either make the capital work for you, or convert that capital to other means of production, which then bring you more capital, ultimately creating a virtuous cycle.
When people invest in stocks, oftentimes they get too caught up and focus only on the price action, and forget the fact that buying a stock represents ownership of the company. In other words, if you own 10% of Tesla's shares, you have ownership of 10% of the company whether the company is valued at 800B or 2T. So what do you do when a company that's supposed to be worth 1T, judging by the amount of money it makes (cash flow) and the growth it's showing, drops to 800B? The most logical course of action is to buy more shares. You want to buy more ownership of the company for a cheap price, because you know that the company is going to buy other people's time (labor) and use that to generate more capital for you.
It seems so easy, but there's a reason why most people fail at investing. Our brains are biologically wired to focus on short term consequences, and we fail to look at what's best for us in the long term. Thus, we make dumb mistakes like selling perfectly good assets just because "the price dropped too much". "A price drop is an opportunity to buy more of a good prospect at cheaper prices." - Peter Lynch Unfortunately, most people sell when the price drops, because fear, uncertainty, and doubt take over their mind. There is a reason why billionaire hedge fund manager Bill Ackman bought over 1.1B worth of Netflix stocks when the price dropped. He saw no fundamental changes to the company, yet the price dropped due to certain people's irrational decision to sell. And I'm very positive that there's a high chance that Bill will be the last one laughing in the end.
I believe that there are only three reasons for you to sell a perfectly good asset: 1) when the narrative has changed (fundamental change in the asset), 2) when you find a better asset, and 3) when selling is inevitable to save your entire position (ex. selling to pay taxes). Unless there is a clear reason for you to sell that fits into one of these three criteria, selling is probably not the best idea. If you truly understand what it means to invest, and convince yourself on why you should be buying or selling at certain levels, you can, and will become a successful investor. Think big, be optimistic, and have patience.
If you like this educational post, please make sure to like, and follow for more quality content! If you have any questions or comments, feel free to comment below! :)
Absolutely beautiful write-up. Since I joined TradingView 1 year ago, the most impressive observation has been seeing extremely smart people share their ideas for free. A write-up like the above supports my conviction of the power inherent in people who want to express their thoughts and ideas and share them for free with others. Yes, Land / Labor / Capital is obviously in the Economics books, but you are emphasizing it very well. At the core, your observations above are spot on. Absolutely agreed with your comments and they are fundamental, yet people forget these. Why? Because people forget the reason behind investing and become greedy. Greed is the quintessential downfall. Greed leads to gambling which is the opposite of investing. Herein however lies the beauty: it is from other peoples greed, insecurity and mistakes that the best investors make money. It is other people's mistakes that allows for some to buy opportunities. Just 1 example: Mastercard was dumped to $330 then shot up to $390 within 2 months or so; as always I bought the low on MA because the company is solid and then I made a profit on the high side. As you mentioned: believe in what you invest in, research and then invest confidently.
It’s not completely a zero-sum game, the best investors never liquidate and rely 100% on dividends. When analyzing companies, I tell myself, “Don’t worry about the price, we’re going to only get money on dividends”.
orange369
⋅
I believe Ready Player One movie is in order. It is the living standard of your/younger generations, compliments from the chef (tech advancements). Also please observe the steepness of the slope this time (2020-2022) and compare to other recoveries. Can't see the future, but near term (2-3 years) I expect a healthy reset. Lastly, there is opportunity cost to consider. One invested in SQ might wait quite some time for SQ to reach ATH again. In summary, long-term (more than 366 days) investing is overrated. After all, the capital gains tax rate for 366 days is same as the capital gains tax rate for 500 days.
hyipster
⋅
Warren Buffet also said “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down.” The old mogul has never been trading, only investing in businesses he trusted each time they were affordable. Note sure that algos have that common sense.
Michael_Wang_Official
⋅
@hyipster, Indeed. There's a reason why that man is many levels above us.
Waltellar
⋅
very pleasant text to read ! thanks a lot . What you describe and explain with details is real and true , in my opinion . Some good advices ... Nevertheless, don't we need we need some people to make some mistakes to then have some possible entries and opportunites to buy while others are on panic ? :-)
Michael_Wang_Official
⋅
@Waltellar, Yes ahaha. The market wouldn't be the same if everyone was rational. One man's panic is another man's opportunity.