One of the most self-fulfilling things of life is owning things. Be it a house, a car, a company, an airplane...Whenever you buy something, you know you worked for it and it makes you feel good! Which leads me to, owning stock of a company. Because that's precisely what it is! When you buy shares through your broker, you're buying a piece of a company! And there is no one else that is going to take that away from you, even if it's just 0,000001% of it! Unless the company goes bankrupt...
Have you ever wondered about when you drive in your hometown or travel and see a building, a supermarket, a gas station that belongs to the company you own stock in? For example, GALP in Portugal? And then thought to yourself: Well son, I own part of that! - I DID! - And it feels great, especially, when you checked the fundamentals, know who is behind the company and you know the prospects! All of this is very important for the psychology of owning shares of companies, because if you don't fully trust the companies, what sense does it make to own them? None! Exactly. Obviously, if you don't know the company you will react to any movement in the price. Either, selling at a lower price than you bought it or selling higher but too early.
The bottom line to purchasing shares in companies is for either price appreciation or dividends. Maybe both in some cases. So, you should have an objective when you buy shares. Just like Peter Lynch describes in his book One Up On Wall Street, most people spend more time choosing a microwave than choosing stocks. And this is still a reality! I have done it myself during the beginning of my investment journey and I know people who do. And this is a big problem for many reasons: People react when they should be sitting still and holding own to their positions; it makes people take rash decisions in the future and feel anger towards their investments and try to take revenge on them by buying on a dip or short-selling; It leads people to shift to other financial products, usually with high levels of leverage (Cfd's, Forex, Futures, Options, Spread betting) which strangely makes people feel better because of the adrenaline of watching the value of their financial instruments change so quickly. It's complicated what goes through the human mind when it comes to investments.
And that's when people start losing more than they have. But, honestly, who likes to research? No one! But it has to be done. There is no other way to beat the market, unless you put your money into an index fund, which matches the performance of a stock index or you find a very well managed fund that manages to make better averages than the market over a considerable amount time.
Coca-Cola, one of my all-time favorite stocks has been consistently beating the market, and it has a rather nice dividend yield. But what makes Coca-Cola one of my favorite stocks is that it can still grow earnings at an average of 10% a year, while being one of the largest Dow stocks. They have more than 25% Return on Equity, more than 10% Return on Assets, more than 15% Return on Investment, controlled debt, they have a nice pile of cash, great margins, valuable assets and much more. If I were to put all of my money in a company, Coca-Cola would be it! But this is my opinion, I could go on and on about it, so don't go and buy Coca-Cola just because I said it is a beautiful company! Make your own judgment! RESEARCH! My point here is that, with Coca-Cola, you can easily achieve price appreciation and receive a regular dividend, which is great!
But, remember, when you buy a company, you expect to receive something in return. So, if you don't know how likely that is going to happen, just don't gamble your money away because a friend or someone told you Stock A is a great company and is expected to grow 1000% over 3 years! Research your companies, and buy them to receive something in return! Price appreciation or dividend. Or both! Buy companies like if you were a fund manager and have the objective of returning 5% above the market average. Define an objective and follow it. Anyone can do it!
Keep investing.
Take care,
J.P
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