Who Invests in Stocks?
Who Invests in Stocks?
Your next-door neighbor with the yappy dog. Your date. Your dentist. Your boss. The guy who runs the biggest business in town. Your pink-haired grandmother with her collection of throwing knives. The man with impressively hairy knuckles who's talking to himself on the subway.
The amazing thing about stocks is that anyone—and we mean anyone—can choose to invest.
And that means there's a lot of sneering at everyone else who tries to invest in stocks. Because what do they know?
Stockbrokers and professional money managers often look down on retail buyers, a.k.a. buyers who follow trends or who don't have pro knowledge about investing. Retail buyers include everyone from the 15-year-old buying his first stock because Monopoly is his favorite game to the man with the comb-over calling a psychic line to decide what to invest in. But it can also include your boss, who carefully reads the financial section of the newspaper and worries about buying what's "hot" right now.
The problem with retail buyers isn't that they want to make a lot of money (face it: everyone does); it's that they think they can make more by buying stocks they think will go up fast. What usually ends up happening is that they buy stocks when they're pricey and sell at a loss or only a very small gain.
To be fair, stockbrokers, despite their name, don't always do tons better. These financial guys sign up clients and make investments for them. Since that's all they do, you'd think they would be good at it…but, uh…not so much. Stockbrokers make money by charging fees to their clients, which means they win if they get tons of clients. Usually, that comes down to marketing rather than making the best investments. If you've seen The Wolf of Wall Street, you know what we're talking about.
Professional money managers range from hedge fund managers who juggle billions of dollars (on paper, not in the form of crumpled up balls) to analysts at mutual fund companies. And they come in all shapes, sizes, and skill levels.
What Makes Someone Good at Investing?
Whether you are a stockbroker, money manager, or just an average person trying to make sense of Wall Street (good luck), how can you tell whether you're good at investing?
For finance professionals, someone who's good at investing is someone who has been in the game for a while and has made money in both bull markets and bear markets, i.e., when the economy is going through its ups and its downs.
There's no science to investing; it's more of an art—modern "what on earth is that" art. Warren Buffett is often seen as one of the best investors of our times, but even he can be beaten on any given day by a kid with a green crayon randomly marking up the New York Times finance section.
Investing's just fun like that.
If you are interested in investing, the most important thing to remember is to stay in the game for a long time. Stocks aren't a get-rich-quick scheme—you'll have to resort to late night TV for that. Also, you need to do your homework to find out about investing before diving in. Learning about stocks and investments and playing the long game are the best ways to avoid losing your shirt on the market…although they're not a guarantee you won't pick up some stinky stocks.