For the average person the number one chance they have of becoming rich
is through investing when some people think of investing they think of day
traders on the stock market floor making deals continuously for hours on end
however this is not how most investors grow their fortunes
in fact the rich in particular follow specific investing principles
that allow them to increase their wealth year over year
and in this video i will share with you five investing principles only rich
people know and if you're new to the channel then
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building wealth investing is the ultimate means of doing so it's been
proven time and time again that with consistent investing efforts over
numerous decades anyone can become a millionaire and
enjoy financial success in their later years however like any
long-term endeavor there are usually challenges along the
way in fact besides knowing the investing principles that must be
followed to ensure their success the rich also know exactly which
mistakes to avoid which is equally as important
these mistakes can foil the progress of any investor
which is why before we get into the five investing principles you need to master
to be rich i will first go over a few investing
mistakes you must avoid at all costs the first mistake is being
an emotional investor if you allow your emotions to affect
your investment decisions you will be guaranteed to struggle in
your money making journey successful investors have mastered the
art of being logical above being emotional there will be days
where you will be tempted to fall victim to your emotions
but those days must be very few greed and fear must be avoided if you want to
achieve your goal of financial independence
you can't succumb to the temptation of short-term profits
but instead must stick to the course of seeking long-term returns
the second mistake you must avoid is trying to time the market
market timing is an investment strategy in which you move in and out of a
financial market in order to buy low and sell high
it has to do with switching between asset classes by predicting the next
turn of events through the use of economic data or
technical indicators many investors believe that they can
make a lot of money timing the market and they're right however it's easier
said than done in other words market timing looks easy
to handle but it is difficult in reality even professional financial institutions
who have been studying market trends for decades
cannot claim to have mastered the art of market timing hence
you will be taking a big risk by approaching investment with a market
timing strategy any experienced investor who is sincere
will blatantly tell you that it is impossible to successfully time the
market in the long run and studies support the counter strategy
of investing for the long term investors who keep their money in stocks
and bonds and let their investments grow over time
tend to perform just as well if not better
than those who try and time the market the third mistake
is lacking investing patients sadly patience is not one of the attributes
many investors possess however it is one of the most important
qualities of successful investors impatience is not a virtue you should
possess as an investor the frantic and frenzy nature of stock
markets make it difficult to be patient however
great investors understand that they have to be in charge at all times
you cannot afford to get lost in the midst of a relentless market movement
many people are trying to grab as much as they can and you have to be active as
well however you have to be passive in your activity
being passive as an investor is not a state of inactivity but a state
of deliberate and logical investment approach the
operation of shares and stocks is actually slow but most people are too
fast because they can't wait to become the next successful investor
it is good to be ambitious but you have to be patient to avoid falling into an
investment pitfall you see before any successful investor
sees real progress in their investing efforts
they will tell you that mastering these mistakes is critical
for instance if you are too emotional and draw out money from your portfolio
during down times then you risk never having your money
recover if you try and time the market you will fail more
times than you succeed since its investing strategy is not
sustainable long term finally lacking patients may be the
biggest downfall of them all when investing for the long term
as you may take too many risks to try and accelerate your road to success
however succeeding in your investing efforts
becomes a lot easier when you have tried and true principles
to follow and the following five are ones you must master principle
number one invest in what you know before investing
in a stock it is very important to understand what a company does
and how it makes its money ever wondered why famous investors like warren buffett
has always avoided investing in tech stocks it's because he does not
completely understand their business model
instead he sticks to what he knows an example of this is coca-cola
buffett has invested a ton of money into this soft drink giant
because it's a business he can easily comprehend
people drink millions of bottles of coke every single day
and since it is a consumable good it means they will continue to have sold
sales year over year which is great as a shareholder in their
company principle number two having investing
criteria when you are about to buy a stock or a
bond what characteristics does it need to meet for you to commit your money to
it do you just invest money because a
friend told you to or do you have set metrics that need to be satiated first
another principle that the rich always employ is investing based on criteria
these criteria may require that asset to be in a certain industry
have a certain dividend yield or even have a minimum level of annual
appreciation while it might seem like a good idea to
just base your purchasing decision on the stock price
this isn't always the best idea in fact warren buffett never makes the price of
the stock the sole criteria of his buying
decision the reality is that sometimes great companies end up taking a price
dip because of the market volatility but that doesn't mean it isn't a stock
you would want to pass up on principle number three capitalize on
tough times generally it's not recommended to time
the market and this is one of the mistakes i previously mentioned in this
video however it is wise to take advantage of
downturns in the economy if you're a long-term investor the
reality is that you'll be fine whether you're buying in a recession
or peak market but during slower economic times it may be wise to invest
a little bit more effort to propel your money-making journey what
the rich do during these harsh economic times
is be on the lookout for opportunities even the investing mogul himself warren
buffett admits to being very active during economic downturns
as he knows that things will eventually turn around
principle number four ignore short-term volatility
investing in stocks can be quite stressful which is why i mentioned
earlier on that you must control your emotions when dealing in the stock
market the truth is that those who fear the
best in their investing efforts are those who ignore short-term
volatility and commit to the long game in fact warren buffett offers great
advice on this exact topic and says that you should only buy a
stock if you are comfortable holding on to it
in case the stock market shuts down for a decade
when you're holding a stock for the long term it no longer makes sense to lose
sleep over short-term price swings ignore the
headlines about the trade wars the government shutdown and other
chaotic news instead focus on learning more about the
businesses you are invested in and continue to seek out other
investment opportunities principle number five identify your
investor type one important principle to live by when
undertaking your own investment journey is to know the exact type of investor
you are in fact the godfather of investing and
teacher of warren buffett benjamin graham
advised that investors know their investment selves
graham referred to active and passive investors as
enterprising investors and defensive investors which means that there are
really two paths when investing the first option is to make a serious
commitment and time and energy to become a good investor who equates
the quality and amount of hands-on research with their expected return
this is the path of the active or enterprising investor
if this isn't your cup of tea then your other option is to be a passive investor
when you're a passive investor you should generally be happy with a
possibly lower return however your time investment will also be less
graham was heavily into the idea that the more work you put into your
investments the higher your returns should be
however the reality is that most people don't have the time or the interest to
become a expert stock investor which is where
index investing comes into play graham believed that passive investors
or defensive investors as he put it could get an average return by simply
buying the 30 stocks of the dow jones industrial average in equal amounts
in fact both graham and buffett have said that getting even an average return
such as the return of the s p 500 is more of an accomplishment than it might
seem the fallacy that many people buy into
according to graham is that if it's so easy to get an
average return with little or no work through indexing then just a little bit
more work should yield a slightly higher return
the reality is that most people who try this end up doing much worse than
average in modern terms the defensive investor
would be an investor in index funds of both stocks and bonds
in essence they own the entire market benefiting from the areas that perform
the best without trying to predict those areas
ahead of time in doing so an investor is virtually
guaranteed the markets return and avoids doing worse than
average by just letting the stock market's overall results dictate
long-term returns one other important point to note is that some people are
not investors at all in fact there is another group of
stockholders who operate differently than an investor
and still obtain profits through their efforts this other group are
speculators now you may be wondering what the difference is between an
investor and a speculator and it's quite simple
an investor looks at a stock as part of a business
and the stockholder as the owner of the business
while the speculator views himself as playing with expensive pieces of paper
with no intrinsic value for the speculator value is only
determined by what someone else will pay for the asset
speculating is generally unadvisable for the average person
it requires a very in-depth knowledge of the market and extreme emotional control
and when you can receive returns in the market without that level of stress and
attention then investing is typically the better path to take
in the end investing is the number one way to build a fortune however
as you've seen there are traps that you must avoid like being overly emotional
trying to outperform the market and being impatient and when you avoid these
mistakes and employ the five investing principles i just went over
you will be set up for investing success thanks for watching if you want to go
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