How safe is it to invest in the stock market?

Starting an investment adventure in the stock market can be something like going on vacation with your friends; you know how it starts, but you don't know how it can end. The difference between an impromptu trip to Ibiza with your longtime colleagues and a trip through the world of stock market investments, is that in the second It is necessary understand how everything works if you don't want to stay at zero. Well, possibly in the first one you'll be at zero anyway...

Why invest in the stock market?

There are many reasons why people decide to start investing in the stock market. But if you're considering doing it because you're tired of working and all of a sudden you want to be a broker, or because you have come to the conclusion that only by buying shares of Apple and McDonald's you can stop living permanently at your parents' house; stop, breathe and think about it.

People who start investing in the stock market overnight without being well informed tend to end up as Zazu: in a cage, surrounded by hyenas.

The stock market doesn't mean quick money, it means fear and euphoria

Maybe you don't know yet, but Fear and euphoria are two colleagues with whom you can't go out drinking on Wall Street. The first is the typical one who never wants to go out on Fridays because he's tired, and the second one is the one who lets out the mythical ones: “we leave quietly” or “the last one and we go”. Are you getting it?

Watch out! I'm not telling you not to invest, I tell you to invest well, and for that you have to learn to control your friend fear and your friend euphoria.

Why am I telling you all this as if I were your mother? Because To which you pay 300,00€ on the first day, You're going to get scared and you'll never want to invest again.

As some millennial grandparents say: “Fear is the path to the dark side. Fear leads to anger, anger leads to hatred, and hate leads to suffering. I sense a lot of fear in you after losing so much money.” Don't worry, this is normal, it's too hard to win 300,00€ to lose them because Match Group Drop 60 points in the Nasdaq. Which, in case you didn't know:

1. Match Group is the company that owns flirting apps such as Tinder, Meetic, OKCupid, Hinge, Plenty of Fish, OurTime...
2. Nasdaq is not hello in Klingon, it's the second stock market in United States

That said, the opposite can also happen to you. Maybe you'll earn 300,00€ investing in Amazon on your first night as a couch broker and the next day you'll start buy shares as if you were the cookie monster in María Fontaneda's factory. 

Do you know which of the two colleagues you had to control is this? Exactly, the euphoria. Don't trust a single bit of her...

Basic concepts of investing in the stock market

Let's start with the fundamental elements, because the stock market isn't just numbers, The stock market is like your town's flea market, but like a beast. Everything is sold, everything is negotiated and everything is bought.

Okay, yes, that's how far I go... but what exactly is being bought and what is sold?

This is where they come into play. two concepts that nobody learned either at BUP or at ESO: stocks and bonds.

Actions

Imagine that actions are like slices of a giant pizza called “company”. When you buy a stock, you're basically buying a piece of that pizza. Now, if the company is doing well and The pizza gets bigger and delicious, your portion will also be worth more. But, if the company has problems and the pizza gets smaller, or it falls to the floor and gets full of cat hair, you can imagine: your portion also loses value.

The objective when buying that piece of pizza for 67.34€ is to think that in a month or a year it will be worth 142.85€... And if there is one thing that BUP and ESO share, it is that before they went through elementary school and learned to subtract. So 142.85€ that your piece of pizza is worth now, minus 67.34€ it cost you when you bought it, that's 75.51€ of benefits you getAs a good capitalist. From that you subtract the taxes you have to pay Like a good Social Democrat (19%, 21%, 23%... depending on how much you earn) and voila, your benefits such as couch broker. Sounds easy, right? Well no, this is just the Story of the milkmaid, Making money investing in the stock market is not as easy as asking a pizza from Telepi.  

Bonuses

If stocks are slices of pizza, bonds are The loans you have been making all your life to your friend Hugo when it happens with the reeds. If you understand this, you just have to exchange Hugo for a State or a company, and you already have the explanation.

Why do states and companies borrow money through bonds? Well, because, like your friend Hugo, they came to a point in the night where they wanted to keep partying but the wallet wouldn't allow it. And what does Hugo do in that case? Well, he borrows from you, promising that he will return it to you tomorrow and that he will also invite you to the reeds next Thursday.

That's bond investing. You lend it to Hugo to keep partying and, in return, you earn the reeds for Thursday. When we extrapolate this metaphor to the real stock market, if you buy a bond from the German State because they're spending more than they have, within a year they will pay you the loan plus interest.

And what defines whether bonds offer a higher or lower interest rate? Easy, yes Your friend Hugo it always pays its debts, we could say that it is the German State, a trustworthy debtor repay your debts with a low interest rate. However, your friend Roberto, that miserable person who He still owes you 4,00€ That you lent him for a Big Mac It has been three years since you owe money to half the neighborhood, if you borrow from someone you will have to promise a very high interest rate because people see it as a banana republic that does not pay its debts.

Investing in the stock market is like getting on the Dragon Khan

Let's move to the next level. Imagine climbing the Dragon Khan, an exciting experience, but not suitable for heart patients.

We are all clear that no one in their right mind would climb without put on your seat belt, Right? (Your friend Hugo doesn't count.) Well, the same thing happens when investing in the stock market. Wearing a seat belt in the bag is synonymous with understand the associated risks.

If you get on the Dragon Khan without a belt, and besides, you don't know when the next corner is coming, You're going to have a hard time boy. In the same way, if you don't understand the roller coaster of investing in the stock market, you're going to take more than one fright When you open that investment application that you downloaded last Monday while watching the last season of Peaky Blinders.

That's why, before you jump on the Dragon Khan from the bag, Put on your seatbelt and make sure you know the twists and turns What does it give. Remember that in the best of cases you could get dizzy for a while, And that in the worst of them You could lose your wallet with everything you had inside. And yes, then you would be the one who would have to borrow money from your friend Hugo...

Factors that influence the security of your investments in the stock market

Let's leave your friends aside and focus on everything that makes it safe to invest money in the stock market or not.

On one side we have the economic and political conditions (sounds exciting, I know). And, although it may not seem so at first glance, they are concepts that are very easy to understand.

You see, you never asked your parents for money for the End of course trip or to buy one motorbike the day your sister broke her knee while playing soccer, or The day your brother loaded the DVD for having played “Back to the Future II” a thousand times. Right? True.

Why didn't you ask for money under those circumstances? Because it wasn't the best time to do it, we all know that. Well, that's how the stock market works. There are times when it's a good time to buying shares, And times when it's better buying bonds; there are times when everything points to investing in cryptocurrency, And times when it's better investing in gold, or directly not to invest in anything. Do you get it?

Those circumstances that we mentioned about your brothers are a metaphor for economic and political conditions. If your brother has broken the DVD, your parents have to buy another one and they won't have one to give to you; if your sister has broken her knee, Asking for money on the way to the hospital amid uncertainty and concern would be suicide, and you know that.

Isn't that clear to you? Don't worry, we see it with real examples.

Real factors that influence your investments

These fictitious family setbacks have a a comparison in real life, they are employment rates, GDP growth, inflation, political decisions, stability, or the lack of it. These are geopolitical tensions such as the war in Ukraine or Gaza, global pandemics such as COVID or unexpected crises such as the one in 2007.

Therefore, just like you ordered for the end-of-year trip or for your motorcycle the day your parents were in good spirits, you will invest in the stock market when there is a favorable economic and political climate. 

Because, if you want to be a good investor, you will pay attention to economic and political changes, understanding that these factors can make you money to buy you the motorcycle that your parents never bought you, or they can leave you at the end of the month on the 7th.

Also, think about the demeanour From the bag like the collective synchronization of all investors. A synchronization that reflects the feelings, decisions and reactions of the vast investor community. Fear, Optimism and Speculation: the same feelings that you and your siblings experienced when asking your parents for money. What if all three of you asked for money at the same time? That there was none for anyone. However, if you were astute, you knew when the time was right and they would give you money to buy the latest Extremoduro album.

Rock tools for evaluating bag safety

First, consider the fundamental analysis such as a study of the DNA of companies. As if you were thoroughly researching the financial health of a band before deciding if you want to be their number one fan and lend them money for their tour.

For that, you'll look at their discography, of course, but also factors such as your income, profits, assets and liabilities. Thanks to these elements, you can calculate the real value of that group and Forecast If they are meant to be Rockstars in the long term, or if they will eventually become Orchestre and playing at the festival of your town.

Then, the technical analysis; the graphs and tables are like the history of the group that reveals its history of successes and failures. 

Looking at the graphs and tables, in the year 2003 Would you have invested in Andy and Lucas, While in the 2023 Would you have invested in Shakira. When analyzing those price movements, ups and downs, you can consider where the music is going, that is, the market!

Finally, assess the financial health of a company It's like evaluating whether a band has the solvency to hire a sound technician, pay the rent for the stage and contract advertising for Saturday's concert. If they don't have to afford those expenses, there will be no concert, if there is no concert there will be no income... Would you risk investing? That is the uncertainty we want to avoid, because we want to invest in reliable bands that will continue playing for a long time, such as Muse or Radiohead Don't they? Well, the same with companies in the stock market.

Diversification: better few many

Surely you've heard the old saying: “Don't put all your eggs in one basket.” A phrase undoubtedly coined by the grandmother of the Asturian fabada.

Well, to put it simply, that's the essence of diversification, a proven strategy that provides security for your investments. Imagine it as build a team of superheroes, each with unique abilities to face specific challenges.

Because diversification isn't just financial language your brother-in-law uses to stay with everyone at Christmas dinner; is a principle rooted in the idea of extending your investments in different assets and industries. 

In the context of stock market investments, the phrase “Man of many businessmen, man of little money” couldn't be more wrong. Thanks to diversification, you can ensure that a setback in a bond or in a specific stock Don't result in catastrophic failure for your entire wallet.

Regulations and protections for investors

Investing in the stock market is something very similar to a Madrid-Barca, a very demanding game that requires the referees to ensure Fair play for there to be a show.

If there were no guarantees when investing in the stock market for investors, or if the authorities fail to enforce existing regulations, no one would dare to invest. Why watch a game in which the strikers can score goals with their hands without getting a red card?

As a rule, the authorities responsible for regulating and protecting investments in the stock market are government agencies. Like football federations and referees, set the rules of the game and ensure that all players, from individual investors to institutional bodies, comply with them. It's that simple.

In conclusion, I think that with all of this you're now ready to become the next Warren Buffett. And no, Warren Buffett is not a German saying that his hotel buffet is an m, he is one of the biggest investors in history, president and CEO of Berkshire Hathaway. Put your batteries on!