Investing in the stock market as a route to wealth involves being aware of the techniques and strategies that lead to investing success. In order to understand and implement these stock market techniques usually requires both knowledge and practice. Additionally, being prepared to accept loss and keep one’s emotions in check is a useful aspect of investing in the stock market as a route to wealth. In ‘The Only Three Questions That Count’, Ken Fisher describes the stock market as a great humbler. This is because no one can predict where it will go and even skilled investors lose money.
Learn
To invest as a route to wealth it often helps to know about investing. Learning about investing requires one to research businesses, study investing manuals and instruction guides, and become familiar with a number of financial tools used for analyzing stocks. There is a large amount of investment material, but here are two books that provide fairly solid introductory financial advice. A top ten investment books list may also be helpful.
• The Intelligent Investor by, Benjamin Graham
• One Up on Wall Street, by Peter Lynch
Analyze
Statistical analysis such as Betas, Correlations and Covariances are used in charting and predicting stock value, but the fact remains, the future of value is both undetermined and unknown. We have all seen the warning “Past performance is not a predictor of future success”
More of the story is that the ‘science’ of money is a reflection of economic thought, regulatory environment, political belief, consumer psychology, supply and demand among other things. Few if any of these things can be predicted with 99.999% accuracy or lower.
Investigate
Investing in the stock market as a route to wealth involves being aware of money, the economy and financial regulation. For example, in Europe the securities markets are not regulated the same way as they are in the United States or Japan and in 2007 the value of the Chinese Yuan was pegged to the dollar making the products it represented a better import deal for various economies. This along with regulated interest rates helped fuel China’s stock market. Investigation also involves research into stock market fundamentals such as corporate financial statements, economics and market conditions.
Respond
Responding to events and market conditions is a key part of investing in the stock market as a route to wealth. For example, the Federal Reserve monetary policy can influence the stock market because a re-channeling of capital made available through monetary policy can make its way into the stock market. Moreover, Money supply also referred to as liquidity impacts the stock market because liquidity is needed for large investments. The more work a population puts into an economy, the more money is needed to reflect the wealth generated by that work. Work as measured by employment and unemployment statistics is a measure of economic performance which is related to stock market performance.