I love the media right now! They are ruining the economy. Let me explain how this works:
They report the economy is bad, earnings for companies are down, or whatever other report they can come up with. People get scared, and sell their stock. The stock market then drops.
You might say to yourself it can’t be that simple, but it really is.
How can you take advantage of a bad economy?
I read a book one time called “How to Take Advantage of the People that Are Taking Advantage of you” (available on Amazon for $2.99 on Kindle). The funny thing about this book… this book 100% funded the story that ultimately became my book “Are You Ready to Invest?” (Also available on Amazon for $2.99 on Kindle). So what is the point of the book mentions?
In my book I share a story where I took a down economy and made profit. The other book I used to take a guy that was broke (me) and fund what ultimately became a successful stock market venture.
The problem when you read the 2 books and talk to your friends they will all tell you about how it is impossible, or how I got lucky. That is not necessarily true and I can explain why.
My book mentions a theory I like to call discount stock. Basically it is like any other discount. Discounts work like this: People don’t want to buy for full price, so the seller sells it for cheaper to entice you to buy.
Stock works exactly the same. If I want to sell my stock, I have to sell it for cheaper than it is worth, to entice you to buy it. So if there are more sellers than buyers stock prices drop. (YES! It really is that simple.)
Take Advantage of Discount Stock
Would you have invested in December, know January was going to go down? NO! (I will help you with these tough ones.) The real question though is when is it going up? SOON! I don’t know when, but it will eventually go up. So if you lost 10% in the month of January you should buy more! Because it is on discount.
Think about it, if there is something you are going to buy (a pair of jeans) and it was on sale less 10% you would be more inclined to buy right?
So why would you sell all of your stock because the price dropped? That really only makes the loss real in the first place, and second you should be buying more.
If I bought stock VOO (an index fund that mirrors the S&P 500) in November, I would have paid $193 for it. Now it is “worth” $173. The reason I say “worth” is because it really isn’t worth anything… Value is made up. In my opinion, this stock is on discount. An 11% discount.
What if I lose everything?
Ok, quickly pay attention to my example. It is an index fund. Could you lose everything? YES! What happens if you do? Well, if you do everyone else in that index does too! Join your counterparts in welcoming the next depression! Seriously! When index fund investing there is a little less risk than investing in individual stocks.
The potential for reward is also lower. Indexes have gained typically an average of about 8-12% per year since we have tracked them. Yet some stocks have doubled and tripled. So you can weigh your risks all you want to.
Before doing any type of investing please read my full disclosure here.
Thanks for Reading