Investing in the share market can be a lonely, scary place. It’s easy to misunderstand it, it’s often overcomplicated by experts and if you are ill informed or ill prepared it can leave you with nothing left but your pants. All of this often leads people to approach markets with the wrong mindset to begin with and then sadly they get burnt, lose their hard earned savings and from then on avoid it like the plague. Which I believe is a shame, because it’s not actually that scary once you get to know it and in an age of concern over the growing division in the distribution of wealth, it could be the perfect vehicle for the redistribution of it (as you will see below). It is called a ‘share’ market after all and besides, why do we invent machines and technology if we aren’t going to ‘share’ in the benefits of them?
History and purpose of share markets
Apparently the first ‘exchange’ was established in 12th century France to managed the debts of agricultural communities. Soon after further exchanges started popping up across northern central Europe as a means to trade commodities. The concept of debt and/or commodity exchanges then spread it’s way across most of the developed countries in Europe. When in 1602 the Dutch East Indies Company listed on the Amsterdam Exchange it started a trend that now sees most developed and developing countries around the world boasting their own listed companies on sharemarkets. – Thats the history.
Here’s the purpose – A company is listed on a sharemarket for one of two main reasons:
- To raise capital from the public market for further investment
- or so the founders and early investors of a company can cash out or liquidize some, or all of their initial investment for a profit.
In short, you can basically think of a sharemarket as a place where a ‘company’ of people and/or other organisations can share the burden or benefit of a debt, a company, an infrastructure investment or just about any other type of asset reliant on capital.
So, sharemarkets weren’t designed to ‘share’ the worlds wealth with the people, but that doesn’t mean they can’t be used that way.
Benefit of the share market – Let the machine spin
From large shells, to goat-skin sacks to buckets, to irrigation canals, to pipelines, to tanks and pumps, at it’s truth innovation, growth and technology are all designed to serve us. To allow us more time to spend enjoying our creative pursuits, our family, our friends, the company of others and the world around us. But it seems we have taken it too far or possibly just in the wrong direction. In all the noise we have forgotten the purpose behind the ‘gift’ of our ingenuity. Now we can’t stop innovating, to the point where we innovate stuff just because we can. This turning the machine into a beast that can rule our lives, instead of a sharing machine that provides us more time and resources to live great lives.
Why it pays to be confusing
Brokers, Fund Managers, Banks, and other advisors (not all of course, some are genuine) profit from making investing in markets sound so daunting and confusing, that you ‘need’ them.
Think about it, it’s like anything in this world, when others perceive to have ‘expert’ knowledge they have power. Where there is perceived power, there is potential for profit. No where in the world is this played on more than in the markets. Have you seen The Wolf of Wall Street?
It’s always a upsetting to me to read about families getting ‘taken for a ride’ via share market spruikers as it ruins lives and then scares others away from ‘sharing’ in the market. Reinforcing the initial fears that it’s a scary and an overly risky place to be.
How I invest in the share market
I got very lucky, very early in my investing career and not in they way you are thinking. “Bet he made a heap of money first go.” Not at all. I didn’t get lucky in the ‘picked a 10 bagger’ (stock that goes up 10 fold) way. I got much luckier than that. Before I became too excited and ‘gambled’ my hard earned dollars away on foolish trades, I discovered the best in the business and somehow had the sense to realise what I had discovered and studied my arse off. In this case the best is Mr Warren E Buffett.
Buffett is a humble, generous, sharemarket investing genius. First, second or third richest man in the world depending on the year and fluctuations of wealth. Buffett is essentially self made and has done so well because of a steely resolve to focus on following a simple refined system of finding great companies run by managers who think like owners and then he buys them at a fair price – That simple.
Buffett let’s his investments compound and re-invests the profits, year after year. Starting at age 11 Buffett bought 3 shares and has now compounded his wealth to about $58.5 billion, of which he has pledge to give away 99% of to charitable causes at his death. That’s what I mean by sharing via the market.
So this is how I invest, I imitate Buffett in the Australian Sharemarket (in time I will start to invest internationally). I follow a watchlist of strong companies, sit patiently and then push my cash into them at a time when the emotions of the market are fearful and I can get a good price.
See, pretty simple and nowhere near as scary and confusing as some would like you to believe. But keep in mind it can appear simple, but its not easy. You really have to be disciplined and stick to your nerve, ignoring all the fear, BS and greed that 95% of the market participants carry on with.
Ignore their games and share
If you feel the sharemarket is for you, first invest in yourself. Ensure you take your time and study. Study those who actually invest profitably and ignore those trying to sell to you profitably. Learn how it truly works beneath the hype and marketing spin and share in the automation of our ancestor’s innovations. To be honest, you almost have too. Cash in the bank is devalued daily if it is not receiving more than the inflating price of goods and services – which fluctuates on average between 1.5% and 3.5% per annum.
However don’t let that daunt you, as you slowly learn, gain experience, confidence and capital, the machine will compound your nest egg for you.
He’s a clear example…
The Australian Sharemarket compounded by an average of 8.9% the 10 years to December 2012.
That means that $10,000 invested at 8.9% for 10 years is $24,271 – Nearly double and a half of your initial deposit. This shows that by simply investing consistently into a low cost Index Fund you will do well. If however, you are passionate and invest in your learning, you may be able to push towards Buffett’s record of averaging just shy of a 20% compounded return every year. If you can manage this – $10,000 invested at 20% for 10 years is $72,683. Over 20 years at 20% that same $10,000 is $528,275.
It pays to share in the market.
Play Robin Hood
What if you believe the share market is full of capitalist, deceitful pigs and that profiting from it only supports the evil machine?
Play Robin Hood then. Beat them at their own game and re-invest the profits into spending more time being a great parent, into a community garden, the local homeless shelter, your own creative pursuits, sustainable companies that support your values or your own company that provides a valued good or service to others.
In 2007 Warren Buffett pledged to give his fortune to the Bill and Melinda Gates Foundation. The richest 1 and 2 people in the world joining force for good, has to be a beneficial undertaking.
Here’s their story and an example of what can be done….
Enjoy the ride!