Jason Zweig reminds us that “our investing brains often drive us to do things that make no logical sense – but make perfect emotional sense. That does not make us irrational. It makes us human. Our brains were originally designed to get more of whatever would improve our odds of survival and avoid whatever would worsen the odds. Emotional circuits deep in our brains make us instinctively crave whatever feels likely to be rewarding – and shun whatever seems liable to be risky.
I think that it is because of this that many people avoid investing their money in the stock market. It simply seems too risky. They have heard way too many stories of people sinking their life savings into a stock investment only to have it all pulled out from beneath them.
However, that is not the majority of the experiences in regards to stock market investing. For that matter, the stock market, for the most part, has been extremely reliable over its lifespan. The majority of the big losses tend to fall into two categories of people. The first of those belong to individuals who have a high percentage of their retirement tied into stocks as they near retirement age.
Here is why this is bad. Stock market gains are often only realized over a long period of time. However, holding stock during a market crash can be devastating. Now, statistics prove that money lost in stock will always be regained over time. The problem in this scenario is that individuals who are nearing retirement may not have as much time as needed for that recovery. It is for this reason that many people will transfer their stock over into bonds as they near that date.
The other loser in the stock market game is that guy who insists that he can beat the market on fast returns. They buy something extremely cheap with the intentions of selling it back as soon as it increases in value. This is often referred to as the penny stock market. The theory here is strong. You buy 10,000 shares of a stock for $100. Then, as soon as that penny stock is worth one dollar, you sell it for $10,000. This seems like a solid plan and many people have found ways to work this system. However, most penny stocks are only worth that price for a reason and often do not reach that return point.
So, what is the point of this post? I started investing in stock three years ago. One of the first things that I established when setting up my investment strategy was to only purchase stocks that pay out quarterly dividends. My strategy has nothing to do with the starting and ending price of the stock. Everything revolves around the quarterly gains that I receive from them. Then, I established a handful of companies that I trusted to churn out regular dividends.
My top three picks have been Proctor & Gamble, General Motors, and Apple. These three companies have stayed relatively stable in their price and all pay me back a small chunk of cash every three months. In doing this, I feel like I probably go against the grain in regards to Zweig’s statement. I try to keep emotion out of the decision. Everything needs to logically present itself in order to be a choice that I allow myself to make. But, what do I know? That’s just how I work.
Life is Strange. Live it Well.