Peter Lynch famously said “If you want to double your money safely, fold it in half and put it in your wallet.”
In other words, you’re gonna have to put some skin in the game to make any money in the securities market. But don’t worry, you can only lose all of your money, right? (well, unless you short sell…or sell uncovered calls…but that’s another conversation for another time)
I do a bit of trading in my own account, and I like to think that I have pretty good risk tolerance–but I don’t. Even if I’m not going to make a trade that day, I check my account at least 3 dozen times throughout the market period, then a few more times after-hours, just to make sure that everything is okay (but it’s not like I’d sell at a loss anyway). You see, I was never good with losing money, which I’m sure I get from my mother. She’s the type of person (and I love her to death) who is up all night, worried that she’s might lose the principal in a money market fund. My dad, on the other hand, would buy about a dozen scratch-off tickets a week, lose 100% on every single one of them, and then buy another stack the following week–so I’ve got a bit of an internal struggle. My ideal level of risk is any financial adviser’s worst nightmare: unparalleled gains, with no possibility of loss. Seems reasonable, right? (Hint: Not even close.)
From my parents’ own quirky ways, however, I formed my own style of investing. It’s simply: if you don’t do your research, picking stocks is like gambling. If you pick a random stock at a random price and hold it for one day before selling, you’re going to get a random result. It could be the bluest blue-chip of the bunch and have a bad day, or it could be a random pharmaceutical company that happened to skyrocket on news that it just received FDA approval for its cancer cure–you really don’t know because you didn’t do your homework. In the same way that it may be disappointing to not be able to pick a random stock and have a winner every time, it’s exhilarating to think that you have a real, tangible effect on how well your portfolio performs. Sure, you’ll never be able to know, with 100% certainty, what will happen tomorrow, but you’ll be able to mitigate that risk by picking stocks that you have done thorough and thoughtful research on and, as Warren Buffet would say, “pick companies you understand,” then you are a few steps closer to building a profitable portfolio.
At the end of the day, you are the only one who can decide to become an investor–not a gambler.