I entered the stock market from 2006 to 2018, which is such a long time. I have always had some money in the stock market, but I have never really made any money in the stock market. Although I have been in the stock market, I rarely paid attention to the stock market from the big bear market in 2008 to 2015. At that time, I was young and had too little capital. I understood a truth: investing in the stock market is far less profitable than investing in yourself.
After working in the IT and Internet industries for fifteen years, I passed my 40s, saw my career ceiling was in sight, and had saved some capital, so I began to seriously consider investing. Investing in the stock market, commonly known as stock trading, how is it done and what kind of money do you make?
Playing stocks with the market
There is a saying that trading makes a living, which is a way of making money based on speculation. It mainly involves gaming the market and making money from counterparties.
This was the way I speculated when I first entered the market, and it should be the same for most new retail investors. It was the bull market of 2006-2007. Any stock you buy will rise, but if it only rises 5%, you will always be dissatisfied. After all, there are so many stocks that are trading at the daily limit, and you always want to change to a more powerful stock. Change it. I just started working at that time, and the average principal after two years (it was small in the early stage, but gradually increased) was only 50,000. By the end of 2008, when I decided not to trade and pretend to be dead, I pulled the broker's bill and traded more than 200 in the past two years. Many times, the commission and stamp tax paid exceeded 60,000, which was more than the principal.
The trading method of playing games with the market is considered technical and does not have a solid foundation, so it feels rather mysterious. Now I think this is also the most difficult way to make money, but this kind of speculation does have the effect of making the poor and middle class pay more taxes in disguise.
Capturing vulnerability arbitrage
Another way to make money by "speculation" is called arbitrage. This method has a relatively reliable basic logic. Arbitrage is mainly based on market differences, information differences, time differences, right and wrong differences, etc. to obtain reliable profits.
The arbitrage theory is reliable, but the difficulty is to find these "differences", just like finding system bugs that are difficult to reproduce, seize the short time window that appears, and take advantage of it in time to make profits. Arbitrage trading involves a lot of information and elements, and is generally time-sensitive. The method is always not fixed, so it is also a very tiring method.
Regarding arbitrage trading, Soros has a story. In 1956, the 26-year-old Soros had already become famous. A senior financial person on Wall Street in the United States invited him to come to the United States and serve as his recommender.
Soros decided to leave the UK and immigrate to the United States, but was blocked by US immigration. They said Soros, 26, was too young to be an expert, so the immigration agency refused to grant him a visa. At this time, his recommender wrote a recommendation letter for Soros to the Immigration Bureau. The recommendation letter read: "Arbitrage traders must be young because they all die young."
For this reason, Soros got the visa. He read this letter of recommendation and said: "I have never forgotten his recommendation. I must stay away from arbitrage trading as much as possible."
Indeed, it must be very tiring to keep looking for arbitrage opportunities in the market, and the gains are also random.
Wealth Creation Investments
This is the concept of mainstream value investing, which mainly relies on value return and wealth creation to make profits.
The theory is easy to understand. If a country's economy grows by 10%, that is to say, it creates 10% more wealth this year than last year, then the value of the companies or other institutions that create this wealth should also increase accordingly. Such an investment can earn It’s money that increases wealth.
The theory is simple, just like Go, but difficult to play. Buffett's teacher Graham failed to invest and went bankrupt during the Great Depression in 1929. After that, he began to concentrate on reflection and research, and was the first to propose the value investment theory, which Buffett further improved in his practice. Generally speaking, the method of value investing is: within your cognitive scope (circle of competence), select the stocks (companies) that can create the most value over a period of time (several years to decades), and use safety (margin) as much as possible Buy and hold at the price, waiting for value creation and price realization.
The creation of wealth is actually very slow, far less rapid than price changes, so value investing is also a slow and long road.
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Munger said: "There are no value investors before the age of 40, and I never discuss investment with investors under the age of 40." There may be some truth to what Munger said. Reflecting on himself, when he was young, he lacked enough experience to understand value and the process of value creation.
Today, I have reached my forties and have begun to embark on my own path of value investing. Some people think that investment consists of trading (speculation). In fact, it is not. It mainly consists of waiting and suffering.
