Many people dream of making money investing.
The idea of buying a few stocks, sitting back, and collecting a nice juicy check for doing absolutely nothing is probably what attracts investors to the market in the first place.
But can you take something like $1,000, $3,000 dollars, or more and make meaningful amounts of money from the market?
You may have gotten advice from people and financial professionals to buy the index fund and be happy with an annual average return of 8%, because “you don’t know how to pick winning stocks”.
But is that really the best way to make meaningful amounts of money?
If you plucked $3,000 into an index fund, you’d get $240 at the end of the year, assuming an 8% annual return.
I don’t know about you, but in my view, getting an 8% return SUCKS ASS. It sucks so badly that it’s not even worth the stress that comes with it.
Why? Because it’s not even guaranteed. There have been many times in history when the entire market fell by 20% or more, so to me, 8% simply doesn’t do it because the upside is limited (even factoring in dividends), yet the downside is much greater.
To me, a non-guaranteed annual 8% return is hardly celebration worthy.
Of course, nothing is guaranteed in the market.
And I realize that.
Hence, if I’m going to take on what’s basically the same degree of uncertainty in the index or in stocks, I’d rather pick the companies myself because at least I’ll have greater control over the upside. Otherwise, I’ll just stick my capital into an FDIC insured CD or P2P Lending platform and get a guaranteed annual 3% or 5% return for way less headaches and uncertainty.
The “normal”, or most common way of investing is to build wealth slowly, and Unusual Investors don’t relate to that mindset.
In case you haven’t figured it out by now, this article (and website) is for Unusual Investors who want crazy rates of returns, like potentially 70% a year or 5% a day, who are (or want to be) unafraid of large percentage price movements in both directions.
The first problem with “value” based investing is that it’s too slow.
I want to make a LOT of money. I want my double, triple and 10-baggers, even if that means living with a lot of uncertainty and discomfort.
A $240 annual return on a $3,000 investment is just not going to move the needle, and even if I increased my investment to $30,000 I’d still be looking at a modest $2,400 profit at the end of the year. Yawn. Hey, how about $2,400 in profits a day? Now we’re talking.
Of course, risk and reward go hand in hand and that’s to be expected. So this is exactly why my money doesn’t go into index funds: On a dollar invested basis, the risk is far greater than the reward!
I would rather accept slightly greater risk (like 40-60% losses) to get much bigger returns (like 100%-1,000% gains in 5 years), than to accept slightly less risk (like 20-40% losses) for almost ZERO returns (8% annual gains + dividends) from the index.
In a sense, the latter is far riskier to me because I’d be missing out on the potential to make huge gains with that capital elsewhere. Worst of all, I could still lose 20-40% of my investments in a major recession by holding a piece of the entire market!
For these reasons, stocks make much more sense to me. They allow me to choose (hopefully) winners myself instead of getting the basket with every winner and loser in the S&P 500.
Of course, growth stocks are not for everybody, because they are by nature extremely volatile, and not everybody can handle that.
But Unusual Investors think big, and they won’t settle for anything less than excellent results.
Remember the 5% daily gains I told you about?
Yeah, those are really nice. If you haven’t gotten a taste of that and you aspire to be a successful long term investor, you’ll like them.
Besides, after a while you realize how foolish it is to trade your time for money by working a 9-5 job for the same predictable, fixed compensation package.
As a long term growth investor, there are a lot of days where I get 3-5% (and occasionally 10% or 15%) daily returns in my stocks, representing anywhere between $5,000~$15,000 of daily gains on paper. On the flip side, there have been days where a stock will tank by 10% or 20% a day because of company or industry specific news, resulting in a $20,000 paper loss in my portfolio overnight.
Do these wild, bi-polar market swings bother me? NO!
Because I’m in it for the long haul, I bought what I believe are terrific companies, and I understand that the richest people in the world are all tied to stocks in some way.
So how do you make real money investing?
If you really want to make money investing and you aren’t already doing so, then you need to forget everything that you’ve learned (because it’s not giving you the results you want) and study the rich, the successful and the unusual.
You need to get two things right to make money investing:
One: You must have a domain edge to be able to properly evaluate businesses and pick winners
When you pick stocks, you need to understand that there are really big losers out there that you must avoid like the plague.
We’re talking about stocks that go on to lose 90% or more in market capitalization within a few years, like GoPro, Lending Club, and Blue Apron. For this reason, it’s imperative that you choose real businesses that are selling real products and not invest in hype, fads, or pipe-dreams like Bitcoin.
By the way, stock picking isn’t something that we focus on here, because I believe that it’s something that every investor must do independently.
That said, the key is to really understand the company and the industry that you are investing in, to know something that the average investor wouldn’t know, and to know the boundaries of your edge.
If you have that edge, then you can magnify it by investing in your top ideas and betting big enough. Otherwise, your returns will pale as compared to what it could be.
Two: You need to understand investor psychology to hold onto your winners
The only real way for long term stock investors to make money is to sell their shares for more than what they paid for. It’s that simple.
If you want to make meaningful amounts of money, just pick good companies and buy lots of shares. The risk will certainly be greater, but so will the rewards.
Making money from the market is not rocket science.
You don’t need to be a genius to figure this out. You just have to understand something about what you are investing in, you should be honest with yourself and be clear on what you do and don’t know, and you need to be patient.
In my view, the most reliable way to make lots of money in the long run is to buy good companies at wholesale rates and sell at retail prices many years later.
You have to buy lots of shares with your capital, hold them for a very long time, and sell them for a premium, but that’s all there is to it.
To be clear, the only way you can buy wholesale is to buy shares when nobody wants them, either because nobody realizes that they’re looking at future winners, or they don’t know about them.
If you buy a stock when it’s “hot” because everybody’s already talking about how they got rich from it, you’re way too late to the party, because the prices have been marked up a bunch of times already, and your returns will be much less than what it could be if you positioned yourself way ahead of the crowd.
All of this seems simple to understand, but it’s hard to do well, because we are human, and humans have funny things called brains that think and hearts that feel, and therein lie the keys to success and failure.
To conclude, if you want to make real money as a long term investor, not only do you need the right mindset, you also need to come up with a good process that works for you.
None of this is easy nor intuitive. You’re busy and you’ve got a lot going on, and this isn’t something that you can figure out by yourself, because if that worked, most people would be making boatloads of money from the market, instead of the other way around.
This is where an unusual expert can really help you, and I’ve included a few resources on where to go next.
If you want to learn how think like successful investors so you can make money as a long term investor, I put together a powerful strategy guide called The Unusual Investors’ Cheatsheet which gives you my simple, original, proven 2-step process that I use to think through my stock picks, hold onto my allocation, and weather volatility.
While you won’t find any specific tips on which company to pick, I believe that this guide gives you something far more valuable: It shows you how to think like winning, Unusual Investors, and the why’s and how’s are far more important than the what’s because you already know what you need to do.
Assuming that you have picked the right stocks, the real, ongoing challenge begins: Waiting. This is when our Mastermind membership can really give you the support and expert guidance that you need to stay strong and hold onto your shares for the roller coaster ride.
Do you invest in stocks? If so, why and how’s that working for you? Tell us in the comments below!
Financial Disclaimer: Stock investing has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in stocks. Don’t invest with money you can’t afford to lose. This website is neither a solicitation nor an offer to Buy/Sell shares. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website. The past performance of any investing system, collection of behavioral patterns or methodology is not necessarily indicative of future results.