Part 6: A consistent calculated path to wealth

When you first start trading to increase your wealth you will have these questions:

  • Do I have to buy now?
  • Would I get off better now?

Professional investors are also plagued by the question of whether the market will rise or fall.



The biggest mistake an investor can make is to time the market while paying little to no attention to the question: “which stocks do I prefer to have in my portfolio”. Even in difficult times, when the stock markets fall, there are stocks that are climbing and vice versa. Predicting when a stock will rise or fall is very difficult or even impossible. That is one of the reasons why patience is so important.

It is, of course, a tempting thought: buying at the low point and selling at the top. That is a ticket for immeasurable wealth. Because the exchange differences can be extreme. There are weeks, months or even years that investors are depressed and where prices keep falling deeper and deeper, closer towards zero.

In other periods, euphoric investors are chasing the prices higher than anyone ever dared to dream.

When? Always!

Even still, there is an answer to the question when you can invest best in stocks: always! Add to that: always and regularly an even amount. Never invest your full assets in one go, because then you are evidentially trying to time the market. This timing can set the course of your investment result for many years. That can turn out well, but also bad. bad timing can set the build-up of your wealth back years. You want to avoid that as much as possible.

A bad period was at the end of 2007, right before the financial crisis, the stock markets got cut in half. On the other hand, shortly after, in March 2009, it was a very good moment to enter. The stock markets reached their bottom around that time. Just then no one dared to buy shares while at the end of 2007 there was a massive purchase. This happens because investors allow themselves to be distorted by timing. At the end of 2007 it seemed crazy not to be in stocks and on the bottom in 2009 it was exactly the other way round: investors who bought at that time were declared insane.

Slow but gradual: the path to an increase in wealth

So invest, through all cycles and markets, regular equal amounts in shares.

You will then achieve with certainty what an army of ‘market timers’ are trying to do: buy when the prices are low and sell when they are high.

Suppose you buy 1,000 euro shares each quarter: if A share is listed at 10 euros, you will buy 100 of them. If the share then drops to 5 euros, you buy twice as much next time. Extra advantage: those who take the first steps in shares can build up at a slow but steady pace – ideal for learning.

It is better to slowly, but gradually, go into stocks. Anyone who abandons this will notice that he will quickly be influenced by the eternal noise on the market. Especially if they have been falling for a while, you will be inclined to invest less. Do not give in to that. Only those who invest at a consistent pace can continue to count themselves rich.

The noise from the market affects the best of the best.

Value Line, a US investment magazine that excels in consistency since 1931, advised very well in the difficult market years between 1999 and 2004. Investors who followed the advice made a profit of 76 percent. But the fund managed by the same Value Line recorded a loss of 19 percent. The managers did not dare to follow their own advice.

Remember

  • Even if the stock markets fall, there are those that climb (and vice versa)
  • Buy one thousand dollars’ worth of shares each quarter. If A shares are listed at 10 euros, you will be able to buy 100 of them. If the share falls to 5 euros, you can buy twice as much

In the next part of this series, you can learn more about the value of expected return. Look forward to it!