I’m Not a Real Stock Broker, But I Play One On TV

Let me paint you a simple picture. Let’s say that you and your next-door neighbor both own identical houses that are both worth $100,000 at the time you purchased them. Both houses are exactly alike in terms of value; both are in the same neighborhood, in the same flood plane, and will go up and down in value over time. OK, now fast-forward five years later after you’ve both purchased your new homes, and your neighbor suddenly moves out of state and you find out that he’s sold his house for $90,000. You immediately call up your mortgage broker and tell him to get the biggest “for sale” sign he has in his office and put it your front yard with as many blinking lights you can afford covering it. You want OUT of that house as soon as possible.

Sounds crazy, right? Absolutely. But people do this every day with their investments. As soon as the market plunges and people see their friends bailing out, they follow suit like lemmings because they let their emotions get the best of them. I’m here to share you a secret to making money: take your emotions out of the equation when planning for your future.

With the new year upon us, I’ll give you another analogy: weight loss. Ask yourself this question: is it simple to lose weight? I would argue that yes, it’s very simple. Now before I get hate mail from the TWO women who are reading this blog post, let me explain. There are two things you need to do in order to lose weight: proper diet and exercise. Two simple facts that will pretty much guarantee weight loss. See, simple. I never said easy, I just said simple. The same can be said about making money in the market. It’s very simple if you follow two easy steps: buy low, and sell high. That’s it…but it’s easier said than done because of emotion. Market fluctuation is as certain as death and taxes, and perseverance is key. Exercising and eating rice cakes hurts like crazy, but it’s worth it. The same holds true with investing. It hurts to stand firm when you see your portfolio fall, but if you stick with it, chances are the reward far outweighs the pain.

There’s literally only one way you can lose money in the market. Selling low. That’s right. You’ve haven’t lost anything until you’ve gotten out of an investment after it dropped in value. Even after the stock market crash, things eventually improved. While no one has a crystal ball, history usually repeats itself and the market is more than likely going to be bountiful once again. And you watch…THAT’S when everyone will be looking to purchase that $100,000 house for $150,000 because the market is so hot. /facepalm.

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~ by Scott L. Clark on January 10, 2011.

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