6 Things I Wished I Knew Before I Started Investing | by David L. | Apr, 2022

Too many people make it look simpler than it seems

Photo by Jeremy Bezanger on Unsplash

Before I got into financial markets, I was kind of already prepared that it is not as simple as it seems. I wasn’t just making the decision between hitting the “Buy” or “Sell” button — I was deciding the value of an asset to determine who is the best person to get my financing and how to make the most return out of my money.

That being said, reading about the company’s financial statements, technical analysis, and option trading guides isn’t enough to make you money. Information that works at making money only works until it doesn’t.

Trader psychology, macroeconomic conditions, risk management, historical analysis, and higher-order thinking are required to stay successful. An investor that invests in what’s fashionable will fail when market conditions change.

It takes only one bad year to write out 10 years of outperformance.

Yet, in practice, people associate the bull market with optimism and the bear market with pessimism. They do their buying and selling at both the worst time.

In a bull market, prices go up but don’t kid yourself into thinking that is a good thing unless you will be selling them for higher than what you paid for in real terms (emphasis). Otherwise, what is really happening is that the bull market is only making it more expensive for you to own more stuff.

You also have to think about who are the kinds of people benefitting or harmed by the bull markets. The ones who win are those who see their net worth increasing and can now afford to apply for loans of better terms or business owners who can sell their company’s debts to investors at a higher price/lower interest rates.

The ones who lose are debt purchasers who now have to pay a higher price to get fewer interest payments/shares of a company, or those who don’t own any debt/asset at all and have to watch the rest of the assets getting priced out of their reach.

In a bear market, all of these relationships are reversed.

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