Investing Does Not Equal Trading

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First of all you can get rid of those Hollywood movie images of frantic traders in front of computer screens packed with information while phones ring off the hook in the background. Dump those images of people running around on the floor with paper flying everywhere. These are the imagest that scare people off from investing.

Stock investing is not about having the fastest computers with the up to the minute information. Some people make their living doing this. These people are mostly market makers with seats on the exchanges. You don't have to know how orders are executed or how they flow from one computer to the other. That stuff is of little consequence to you. Think of it this way: You are an excellent car drive, but you don't know how to build the engine.

Remember this important fact: Investing is like a chess game, where thought, patience, and the ability to peer into the future is rewarded hansomely. Makeing the right move is much more important than moving quickly.

If the mechanics of stock investing does not matter, then what does? Get this point into your head early in the game. It will serve you well for the rest of your investment career. When you are buying stocks, you are buying ownership interest in a company. You are not buying pieces of paper to trade. You trade baseball cards with your friends, you don't trade stocks.

Before making a major purchase, most people do a little research, even if it's just to compare prices. But they will buy or sell thousands of dollars of stock on rumors. You tell me what kind of sense does that make to you.

If buying stock is buying a business then you must think like a business owner. This means learning how to read financial statements, figuring how a company actually makes their money, spotting trends, and finding out which companies have the best competetive advantage. Then you must figure out a fair price to pay for the business. If you notice, none of this calls for lighting fast reflexes. The only people who need to act fast are emergency room doctors. Investing is an intellectual exercise.

Open your mind for this one fact. When you buy a stock you are not buying the stock market, you are buying one individual business. Some people earn a living by predicting market movements but they can't do this consistently. It is impossible to consistently predict the movement of the stock market. If a person always knew beforehand which way the market is going, he or she could invest all of their money and get rich. Why are they on T.V. trying to predict market movements? You can save a lot of time, energy, and money by tuning out the prognosticators.

Focus all of your efforts on selecting the right stock at the right price. You will make money no matter what the market is doing. The market is an extremist in the short term. It goes to the extreme left of right; depending on whether the economic news is good or bad.

Future earnings drive stock prices over the long term. So it is in your best interest to focus on how the business is going to generate thos future earnings. Competitive positioning, or the ability to keep their competitors away is a very important factor in determining future earnings potential. Despite where the financial medial spends most of its attention, competitive positioning is very important. It is more important than the news that josts stock prices and company management.

Think of investing as taking a trip across the ocean. You can't control the weather or the tide. The one thing that you can control is the ship that you board. Think of competitive positioning as the seaworthiness of a ship and its engine horsepower as the cash flow. Some ships are cast iron and ready, while others are made of rotten wood and about to sink. All ships will experience waves(volatility). And a tide will make all ships rise, but the ship with the best ship will make it to the other side. We are going to show you how to pick the best ship.

The Financial Reality

It is very easy for new investors to get sidetracked by focusing on the mechanics of trading or the direction of the overall market. You have got to tune all of that noise out. That stuff is just a lot of talk. The people doing all of that talking are trying to confuse you. The more confused you are; then you will have to come to them for advice. They will not give you the advice that you seek for free. They are going to make money off of your confusion. To get in the right mind set, tune out that noise and close your mind to that jibberish. Focus on studying individual businesses and their ability to make future profits. You will become a successful buyer of businesses.