One Investing Strategy You Should Know
Over the past several months I have talked about controlling your money through budgeting and savings. So, I thought it would be appropriate to do an introduction to a basic investing strategy, and how supply and demand works.
I know these topics can sound boring and confusing, however I am going to make this as simple as possible and I promise you will learn a thing or two from this post.
The basics of investing are Supply and Demand
What is supply and demand?
The easiest way to explain this is with Christmas Trees.
In December where on this graph would a fresh spruce Christmas tree land? It would be at the top left, because the demand would be high, the supply would be low, and the price would be high.
Now, what happens in January? The supply of “orphan-Christmas trees” is high and the demand is low, so the price is low.
What if you bought Christmas trees in January and sold them the following December? Well you would be an investor and you would buy low and sell high based off supply and demand principles.
When there is a set pattern it is easier to pin point a time to buy and a time to sell.
When is the most expensive time to buy a Mother’s Day Card? When is the least expensive?
When a new I Phone comes out where does it land on this chart? Top Left.
Well duh Phil!
So why is this important?
When we look at investing, in anything, the name of the game is to buy low and sell high. If we can pin point an entrance strategy and an exit strategy then we have an investing strategy.
Supply and Demand is how stocks and real estate work. When a lot of people want to buy a house in a specific area then the demand increases, the supply decreases, so the price goes up. Visa Versa.
Same thing with stocks. If people think a company will do well (be profitable) then they buy the stock so the demand for that stock goes up which increases the price.
Here is a simple example stock graph to look at…It looks like a roller coaster right?
If you see a trend like this over a period of time, then you can figure out an entry and exit strategy. Stock prices can go up and down based on a lot of different factors. But, if you are looking strictly at the technical (numbers) analysis this is one investing strategy:
On the red line you could buy 1 share for 5$ dollars and on the green line you could sell 1 share for 10$, which means you would make 5$ or double your money. What if you bought $1000 worth (200 shares)? Then you could sell those 200 share for $2000.
You can use apps like Robinhood or E*TRADE to do this.
What if instead of stocks, we looked at real estate?
You could buy it anywhere below 100k, then sell it at 100k, and make money right? When do you not want to buy it? 100k.
You can see graphs like this on Zillow or Redfin.
I wish they taught us this stuff in school. Robert Kiyoskai, my favorite author said, “The difference between the poor and middle class and the rich, is that the rich make money work for them”.
Having a savings account, paying off debt, investing in your 401k, etc. is all very important. However, having an understanding of what the stock market is and how people make money through investing is very important for our financial IQ.
With any type of investing you can make money or lose money. It all matters about limiting risk and executing on your strategy. Just like if you play a sport, you could get injured, lose, or win. It all depends how you prepare, practice, and execute.
What are your thoughts on investing?
Have you tried this strategy before?