I was recently reading an article about a stock market challenge for high school students in Colorado, and a very basic but important point was brought up…
Whether they realize it or not, most Americans have a stake in the stock market.
And here’s why a large portion of them are doing it all wrong…
Much like we hear in sports, it’s always beneficial to go back to the fundamentals when trying to become better traders and investors.
And that one thought from the article I read brought me back to an important lesson that I learned very early on concerning investing.
Whether it’s through a retirement account or other means, most Americans are involved in the stock market whether they realize it or not.
Most of those people let someone else handle their money, and they don’t realize how terrible of a job that person is probably doing.
You see, the phrases “invest for the long term” and “buy and hold” have long accompanied any thought of investing, yet they couldn’t be more stupid.
As we all know, the market goes through cycles of climbing and falling, bull markets and bear markets.
With the strategy of “invest for the long term”, the person in charge of other people’s money would happily hold onto investments as a bull market topped off, turned into a bear, and fell 50%.
How does that make any sense?
It doesn’t. Why not profit from the bull market while stocks are rising, then avoid losing most of what was gained by sitting idly by while stock prices crash?
Then you can profit from the bear market by short selling stocks!
Think of short selling as the opposite of buying stocks…
If you short Stock A, you are expecting the price of Stock A to fall. With this type of trade, you are borrowing shares and selling them. If the price then goes up, you are losing money. If the price goes down, you are profiting.
It’s as simple as that. You are basically just flipping everything upside down and acting the same as you should be during a bull market, but in reverse.
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