Understanding Stocks

WHAT I REALLY THINK ABOUT THE STOCK MARKET 175
4. It forces you to take action. When you lose money in the market,
you have a choice: You can keep repeating the same mistakes,
or you can find out what you’re doing wrong. You learn nothing
if you ignore the truth. If you find out what you’re doing wrong,
you always have a chance to get it right the next time.
Get Your Finances in Order
In my opinion, you shouldn’t consider investing in the market until
you’ve taken care of some other important details. Here are a few ideas:
1. The first investment you should make is in your home.
2. After buying a house, buy a mutual fund. This will give you a
taste of how the stock market operates. If you have a chance to
open up a 401(k) or an IRA, do so. Earning tax-free money can
eventually make you wealthy.
3. If you have any money left over, invest a portion in the stock
market.
4. Your lifelong goal should be to reduce or eliminate debt. It’s
amazing how quickly your money grows when you are not tied
down with unwanted debt, like credit card bills and car payments.
(I don’t even like mortgage payments, but you had better speak to
a tax adviser before making that move.)
Buying and Holding Isn’t for Everyone
In my opinion, you should not simply buy a stock and hold it indefinitely.
For over 60 years, investors have been brainwashed into using
this simple but ineffective strategy. Let’s try to understand why buy and
hold is so popular.
First, there has been a massive public relations campaign by Wall
Street to lure people into buying and holding stocks. If the market is
going up, you buy because you could miss out on the next bull market.
If the market is going down, you buy because stock prices are so cheap.