Because I am a Christian, I was often judged by my well-publicized advice to invest in the Stock Market. In fact, I wrote a popular book, Put Your Money Where Your Heart Is, which focused and taught how to invest in the stock market as well as all the existing public investment markets.
Selling stocks goes back centuries. When companies needed to expand, the banks could not handle the loans required to support expansion because there was not enough money deposited in the banks. Companies then went to the public and sold interests in their businesses called “shares of stock.”
When a person bought a share of stock in a company, he or she was promised part of the profits, if any. These were called dividends. The dividends would be paid on a regular basis as the company shared its profits. Selling shares of stock to the public brought the money into the banks and spread the risk of the business over a wide number of people. In fact, if it weren’t for the stock market, few of us would have jobs because the companies we work for would be out of business or scaling back because of a lack of funds to operate.
People often ask me, “Is playing the stock market gambling?” It can be. When I first became a broker, I quickly learned about the option market—the stock market’s answer to the horse race. When a person buys an option, he does not purchase or sell the stock. Instead he buys a contract and then bets whether the stock will go up or down.
If he bets that the price will fall and then it goes up, he loses money by every dollar the stock raises in price. If he bets the stock goes up and it falls in price, he loses for every dollar the stock goes down even to zero. On the other hand, he can also gain much money if his stock rises, and the profits are unlimited as to how much the stock may rise.
The stock market can also be considered gambling when a person buys a stock and doesn’t know what he is doing or doesn’t listen to a sound researcher’s professional advice. A theory among bona fide financial advisors is: The individual investor making his own choices is wrong 90 percent of the time. It has been my experience that it’s more like 95 percent; especially, for first-time stock pickers who act on a tip they learned from co-workers standing around the water cooler.
The stock market should not be used purely for speculation—although speculating is not wrong. The stock market, however, has outperformed every other investment in total returns since 1936, including real estate. That’s why I do not consider investing in the stock market to be a form of gambling no more than investing in property is a form of gambling. You have to be experienced at investing in either, or you will lose money.
Now here is some very sound advice taken from many years of experience:
1. Since I have also been to law school, I give legal advice. One of the things that you learn is that people hate lawyers. They also hate stockbrokers, but does that mean every lawyer or broker is sleazy? Of course not, and you would be lost without one in the courtroom, and you should have one in your “court” when you are investing your hard earned cash.
2. Avoid discount brokerage firms because you have nearly zero account management, and that increases the risk of losing your money.
3. Pay commissions and keep a professional on the job. When you are buying equity securities without paying commissions to someone who advises you, it is like buying an airplane. The investor buys the plane and does not pay for and does not get the services of a pilot. The question therefore becomes: “Are you absolutely sure you know how to fly this plane?”
Professional advice carries a price tag no matter what its source. That’s why I don’t treat myself medically or defend myself in court. The same principle applies to investors who consider selecting their own stocks, mutual funds, or bonds.
If you are not experienced enough to know all the ins and outs of the simple investment tips that I’m providing here, then you probably should not be buying your investments directly.
You could be gambling with your own future.