HenriNostradamus (71.42)

The best strategy to earn money in the stockmarket

October 15, 2009 – Comments (1) | RELATED TICKERS: EGI , IVN , NGD

It all depends on your buy/sell behaviour. To make money in the stockmarket you first have to learn to stop feeling - no emotions - the market is fearless and has no mercy. You got rid of your emotions? OK - you are ready for the next step. The next step is to learn how to make use of time. Time is your friend. Never let time kill your position. Also - don't be too eager or too sure. The market is full of surprises.

So, if you have no emotions, when you have time behind you and when you don't expect that your stocks will go skyhigh (so you are in a realistic mode) - then it is time to start.

Start: Select a stock you know and that belongs to a company which produces a product you like or admire. Could be anything. Buy the stock for the current price (don't wait -just buy it). After 3 months you do this again for another stock/product. And so on and so on. After 5 years you have a nice portfolio (20 stocks). By then you start to look at the 4 stocks you started with (first year purchases). Sell the stocks that show a loss. Hold the stock that show a profit. After another 5 years it is time to check these stocks again. In the mean time you keep buying each year 4 new stocks (and check the stock you bought in year 2,3,4, etc.). The amount you spend on a stock is not relevant. Spend money you will never need (time should be behind you). Reinvest the money you got out of sold stock without waiting for so called great opportunities (just buy into the market asap).

By acting this way you will find out that you always make money. Why?

Simple. The stocks you have picked this way are probably connected to big, very well known, companies. These kind of companies have the nasty habbit of not going bankrupt. Meaning that the stocks of your companies will be up and running each time you check the performance. SO, they exist and have a price. You only sell losers - meaning that the winners keep running.  The first rule in investing is: stop your losses and don't take out your winners. Acting by this rule wil give you a reward that beats the general market.

What can you expect? History showed us that investing in shares brings over time a 10% increase (year/year). You probably will beat that number by taking out the losers every 5 year. If 50% of the stocks you picked are losers and 50% are winners you will make a return of 2300% over 40 years. This number indicates the total return of all your investments(!!) - including the money you invested in year 39. In this strategy I assume that all the money out of stocksales was reinvested immediatly.

If you read this then you probaby will think that investing can't be that easy. I assure you it is. Investing is very easy (trading is not). If you don't believe me - just try this approach out in a dryrun. Start investing in 1970 and make the calculations for yourself. I'm sure you will find out that you actually make a higher return over the 40 years than the 2300% I indicated earlier. If you have a lucky hand in picking stocks it could go as high as 4600%. Please be aware that 40 years is a very long period and that inflation alone will have eaten away approx. 1600% of your profits. Never the less this approach is rock solid and gives you a nice return. Take advantage of it. 

HN