Editor’s note: This article was first published in March 2011. It reports news from that month: some 80 unemployed people in Andalusia holding inherited shares, the possible war in Libya and the Japan disaster. No source is given for the Andalusia cases.
Although interest in stock market investing in Spain is growing, we are still a country with little culture of this kind of investment. In fact, I would say that what we generally lack in this country is interest in financial education.
The average Spaniard has no training in any kind of investment. That is one of the reasons why, when the crisis hit, many families found themselves struggling: they had no financial assets. If we asked people to define what investing in the stock market means, I’m sure most would describe a game of chance where you can win a lot of money or lose everything.
Others think the stock market is only for the rich and/or capitalists. Others confuse the stock market with Forex, some think investing in shares means trading, and others think it’s like walking into a casino and betting on red 14 and even black 12.
Our ignorance in this area goes so far that in Andalusia there have already been some 80 cases of unemployed people going through hard times who held shares inherited from their parents and had never even considered selling them. One of them has just discovered they own more than 25,000 euros’ worth of Telefónica shares that they could sell tomorrow.
I still say that the stock market is one of the most profitable investments, and you don’t need a university degree to understand it, as long as you acquire a minimum level of knowledge about the factors that drive share prices. Can you lose some money? Yes. Can you lose all your money? Unlikely, though possible in a small percentage of cases. But the reality is that the most logical and likely outcome is that your investment will pay off over time.
See also: Spain heading for a second recession: the perfect storm
Often, when people become interested in investing in the stock market, they sign up for courses that explain investing in such a complex way that you end up thinking it’s too complicated for you. In other cases you’ll get investment advice from people whose closest brush with the stock market was going to the premiere of Wall Street 2.
Then there are the “show-offs” who will make you green with envy: they bought at the low one February 10th and sold at the high the next day, making more than 10,000 euros in a single morning. It can happen, but so far none of the active investors I know has managed to buy at the bottom and sell at the top.
People sometimes ask me to recommend courses on how to invest in the stock market, and to be honest, I haven’t yet seen anything new that we haven’t already said here, apart from a huge amount of technical data that distracts us from what stock market investing really is. There’s no better course than sticking close to an active investor and devouring the economic news while analyzing how the markets move in response:
- Possible war in Libya: oil prices rise
- Tragedy in Japan: commodity prices rise
In the end, the greatest talent for investing in the stock market is common sense and patience. Although people say you need to know exactly when to get out, I’m more in favor of finding the right moment to get in, because by the time the news arrives telling you to sell a stock, you’ve usually already lost a few points of return.
See also: 8 books Warren Buffett thinks everyone should read
Some will think the stock market is pure speculation, and sometimes it is, but I like to see it as something creative and productive: with your investment you finance a company, you make money and the state collects tax on your gains. A win-win for everyone.
Further reading
- Why is the stock market the most profitable investment?
- Free stock market investing course
- Common mistakes when investing in the stock market
- Serious investor mistakes
- How you can go broke investing in the stock market
Featured image: Iván Rivera, CC BY-SA 2.0, via Flickr.
