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How Do People Get Rich From Trading Stocks?

 

Probably not! 98% of all day traders lose all their money in the first two years. As to long term investors, the usual assumption is that people will make a certain return like 5% or 10% per year on their invested money. Don’t believe it! In my experience with dozens of high net worth clients, it is just as likely that they will lose their money on investments.

There are a lot of “advisors” on the net who will put you in lousy deals. Why? They get the best commissions on sale of crap. That is why they recommend the worst possible “investments” to you. It took me a long time to catch on that stock brokers and bankers were never looking after in my best interests. They were looking out for #1 (themselves!) Plus, the average person informed by TV programs and newsletters always buys all the wrong stocks: Usually at an all time highs, “when things couldn’t get any better” and he sells everything at market bottoms when he hears that “Things are bad, but will get worse.” The typical “investor” sells when there is a sudden drop or panic and the pundits are proclaiming gloom, doom and the end of the word as we knew it.

Usually most securities that are promoted for you are the worst investments, but they may be the only ones you hear about. I get hundreds of these tempting “click bait” offers in my spam every day. The ads are very well written and convincing. But they provide less than worthless advice. Even with bank deposits, many banks fail. All companies go out of business, eventually. All your saving and investing will probably be totally worthless a few decades from now in our current inflationary environment. Either you start your own business, have a profession like MD, Lawyer, CPA, etc or you will never end up rich. Any exceptions? Sure! Maybe .001% of corporate employees who get top jobs gets “golden parachutes” & can sock away enough to retire rich. Sure, one in a hundred people will hit it lucky on an obscure stocks…. There are lots of horses in a horserace, but only one wins. Same in the stock market. Bonds only offer a guaranteed loss of purchasing power. To have a million dollars in assets in 1935 was to be very rich: Limo, cook, chauffeur, maid, big 5th Avenue apartment in New York City, winter estate in Palm Beach, and the best private schools for your kids. To have that today, you’d need closer to $100 million. Add a decent yacht and a jet plane and you’d need $200 million USA dollars in assets. Probably in another 30 years, you’d have to add another couple of zeros. Why? Inflation affects all paper money & makes it a bit more worthless every year. I just visited Chile where you need 700 of pesos to buy one USA dollars worth of anything. Similar in Russia where one ruble used to be equal to USA dollar.

Many of my own stock picks are down 80% from their peaks of a few years ago. And I am one of the better stock pickers and investors. Bonds bought today will be down even further if and when interest rates go from 1–2% to where they should be 8–9%. That would be 3–4% above inflation. When people cite “average returns” in the stock market, they always omit the substantial number of corporations that go out of business & die. Remember that investors like Warren Buffet didn’t get rich by investing their own money in the stock market. He used investor money and leverage (borrowed money) to get into deals where he controlled or at least had a major say in the outcome. Purely passive investors put control in the hands of often incompetent others. A certain wealthy guy we read about every day had a long history of putting his passive investors into lousy casino deals where they lost big, but he came out of many bankruptcies smelling like a rose. Bottom Line: Saving & investing “paper money assets like stocks & bonds” only guarantees your future poverty. If you must make passive investments, real estate, gold & solid stuff like that is what to invest in. Having a profession or business that fills needs and makes you a profit on goods or services is the only way to stay ahead of the game.

- W. G. Hill