Ask These Questions

 

1.  Do you own a house?

2.  Do I need money?

3.  Do I have the personal qualities that will bring me success in stocks?

Whether stocks make good or bad investing depends more on your response to these questions than on anything you’ll read in elsewhere.

Do I Own A House?

As might say on Wall Street, ‘A house, what a deal!” Before you do invest anything in stocks, you ought to consider buying a house, since a house, after all, is the good investment that all most everyone manage it make.


If you buy a $100,000 house for 20% down and the value of the house increase by 5% a year, you are making 25% returns on your down payment and the interest on the loan is tax deductible. Does that well in stock market and eventually you’d be worth more that Boone Pickens. As a bonus you get a federal tax deduction on the local real estate tax on house, plus the house is a perfect hedge against inflation and a great place to hide out during a recession, not to mention the roof over your head. Then at end, if you decide to cash in your house, you can roll the proceeds into a fancier house to avoid paying tax on your profit. “Never invest in anything that eats or needs repair” may apply to racehorses, but its malarkey when it comes to houses. There are important secondary reasons you will do better in houses than in socks. It’s not likely you’ll get scared out of your hose by reading the headline in Sunday real estate section: “Home Prices Take Dive.”

Houses, like stocks, are most likely to be profitable when they are held for long period of time. It takes a moving van to get out of house, and only a phone call to get out of stock. No wonder people make money in the real estate and lose money in stock market. They spend months choosing their houses, and minutes choosing their stocks. In fact, they spend more time to shopping for a good microwave oven then shopping for a good investment.

Do I Need The Money?

It makes sense to review the family budget before you buy stocks. If you’re going to have to pay for a child’s college education in two or three years, don’t put that money in stocks. Only invest what you could afford to lose with that loss having any effect on your daily life in the foreseeable future.

Do I Have The Personal Qualities It Take To Succeed?

The list of qualities ought to include patience, self-reliance, common sense, tolerance for pain, open mindedness, detachment, persistence, humanity, flexibility, willingness to do independent research, an equal willingness to admit to mistake and ability to ignore general panic. In terms of IQ, probably the best investors fall somewhere above the bottom ten percent but also below the top three percent. It is crucial to be able to resist your human nature and your “gut feelings.”

Some have fancied themselves “long-term investor,” but only until the next big drop at which point they quickly become short-term investor and sell out for huge losses or the occasional minuscule profit. Everybody is supposed to be listening, but that’s just the problem. Everybody ought to be trying to fall asleep. When it comes to prediction the market, the important skill here is not listening, it’s snoring. The trick is not to learn to trust your gut feelings, but rather to disciple yourself to ignore them. Stand by your stocks as long as the fundamental story of the company hasn’t changed.


“Rise early, work hard, strike stocks.”

 

Congratulation you take one more step towards your financial freedom.

 This Summary from "One Up On Wall Street"

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