The stock market can appear to be overwhelming and complicated at first glance.
So wouldn’t you like to have better understanding of the system and break it down in a way that steers you in the right direction?
If your answer is yes, then read further to discover the trick I learned to do just that.Thankfully, the system can be disassembled into an analogy that can set you on your way to understanding the fluctuations of the market and earning almost triple the average profit.
Are you ready? Here we go!
Let’s pretend for a moment that you, the investor, are an early Native American on the hunt for buffalo, which we will refer to as a group of companies within the stock market.
Similar to the buffalo, companies within the same industry tend to travel in groups or “herds”, which are referred to as Exchange-Traded Funds or ETFs for short.
As the hunter, these ETFs present valuable information for you!
Herds of these companies can be studied and invested in based on the success of their industry.
For the sake of analogy, a larger buffalo herd increases your probability of getting a kill and obtaining resources from the animal.
Are you still following me?
This works interchangeably with the stock market, considering the more companies involved within the industry, the more easily you can make a profit from your investments.
In this case, overhunting or over-investing strengthens the herd rather than driving it towards extinction.
Typically, annual ETF earnings average around 8%; however, throughout 2017, the Technology sector (XLK) produced approximately 23% of earnings.
That’s close to three times the average of other ETFs!
If you hunted in technology in 2017, your hard work paid off… literally.
Here’s the catch.
This method of understanding works both ways.
Just as ETFs often reap the same rewards, they also sow similar fallbacks.
Take the example of the last Facebook leak.
Following the scandal, the company’s value fell $50 billion in a single week!
Consequently, other companies within the tech industry, such as Twitter and Snapchat, were affected, causing shares to fall as much as 10% and 3%, respectively.
Just remember that a thriving sector does not always continue to prosper. One sick buffalo can infect the rest of the herd and as a hunter, you want to pursue the healthiest herd.
In other words, hunt companies in an industry that succeeds as a whole.
Next time, when you are looking to pull the healthiest profits possible, refer to yourself as a Native hunting buffalo and remember to pursue ETFs that will deliver the most resources.
A herd that will make you rich!
Thank you
Thanks a lot.
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