Sometimes people will ask me about what invesments they should invest in. Sounds simple? Recommend a few here or there and you’re set. Nope, that’s not all there is to it. Here’s a few reasons why:
You get the blame.
Even if you give them sound advice, if things don’t work out the way they think it should, they WILL blame you. You’re giving them free advice and yet they think they get to blame to you if things don’t turn out their way. Unless they’re paying you for your services, they have no right to blame you. In essence, if they don’t understand the inherent risks of certain investments, they shouldn’t be there in the first place.
Some of them aren’t looking to “invest”.
This is especially true when it comes to the stock market. Some people think the stock market is equivalent to gambling at a casino. You can definitely tell if they ask “Do you play the stock market?”. They’re not looking to invest. Investing takes time and patience. They’ve probably got a friend or two that got lucky off some penny stock and think likewise.
I told people about how my investments so far have yielded about 20% in a one year time frame(more if not for the market’s downturn). They then go “that’s it?”. These kinds of people aren’t going to settle for 20% gains in a year, they want fast results, and generally are looking for riskier than hell investments. Most times they’re better off at the casino or racetrack.
They have the wrong ideas about key concepts.
A friend who wanted to invest in stocks asked me what stocks I would recommend. I said my pick for what I think has good upside potential with little downside was Montpelier Re (MRH). He checked the price quote and saw the price around $18. He then proceded to say:
“that’s a little expensive, do you have any recommendations under $10?”
I then tried to explain to him the concept of a company’s market cap and that a stock’s ticker price has no relation to the size of the company. No luck. Some people cannot let go the psychological aspect of the pricing of a stock. I guess it always feels good to own a high number of shares. This is probably one reason some people cannot stay away from penny stocks. There seems to be a greater upside potential for lower priced stocks and this is simply not true. What is true is that generally companies with smaller market caps do have great upside potential since they are smaller in size and have more room to expand.
“The chart looks good.”
I despise this conception the most. People will look at a chart at the stock’s past performance and see an upward trend and think this is a great investment. They invest and more often than not, the investment starts to go down. Looking at charts to pick your investments is a great way to lose money. Just because a stock is going up doesn’t mean it’ll go up in the future. Most times if it’s had a great run it might be valuated too high and drop to compensate.
Okay, it’s 4:30 AM and I’m done ranting. I’m pretty sure you know tons of people out there that shouldn’t be investing at all.
Your completely right. These people who “play stock” are ruining it for those who know what they are doing. I have been experiencing the same amount of gains as you (well, around 15%) and I’m relatively satisfied. I originally invested around $2,500. Coincidentally, I recently had a large sum of cash stolen from me, so networth is flat! haha, but the point is that investors cannot have ADD. And I don’t have ADD.
Why don’t you post your stocks? I swear, I won’t get mad if they lose money. Its just that 20% seems good to me for now. Haha, what are you afraid of? Getting angry emails?
I do post my stock picks and what I invest in.