“Ich mache Sie reich” (I’ll Make You Rich) by Markus Frick provides valuable insights into entering the stock market to generate high returns. Despite being an individual previously incarcerated for market manipulation, Frick has written several books that contain relatively good and informative content. In this book, he guides readers through the process of building wealth through strategic investments in the stock market. This article aims to expand on the key concepts presented in the book, offering a comprehensive overview for individuals interested in entering the world of investing.
The First Steps to Wealth Accumulation:
Before delving into the planning and realization of wealth accumulation, it is crucial to assess your current financial situation. Start by gaining a clear understanding of your existing financial resources. Calculate the amount of money you currently possess and determine how much remains after deducting essential living expenses. This assessment will provide you with your available capital for investing in the stock market. Once you have these figures, it is essential to decide whether you want to make a lump sum investment or contribute on a monthly basis. Clarifying these details upfront will set the stage for your investment journey.
Next, it is important to identify your risk appetite. Are you comfortable taking on higher risks for the possibility of greater returns, or would you prefer to minimize the potential for losses, even if it means accepting lower returns?
The Initial Encounter with the Stock Market:
Before depositing actual money into the stock market, it is advisable to create a virtual portfolio, also known as a “paper” or “dummy” portfolio. By utilizing a simulated trading account, you can virtually purchase the stocks you intend to invest in and track their performance. This approach allows you to assess whether your investment decisions would have been successful without risking your hard-earned savings. Remember, the stock market is not a game of chance; it requires strategic planning and rational decision-making. If your virtual portfolio consistently yields good profits, then you are ready to start investing for real.
Motivation plays a crucial role in all aspects of life, and investing in the stock market is no exception. To succeed, you must renew your motivation every day. Approach every task with 100% attention and energy. Ultimately, you are the sole driver of your success. Avoid waiting for random chance or relying on others to lead you to success.
The Most Important Rules of the Game:
When participating in the stock market, it is imperative to operate with a predefined plan and a well-developed strategy. Thoroughly research the stocks and funds you intend to invest in. Investing time in research upfront can help you avoid unpleasant surprises later on. Furthermore, it is advisable to limit the number of holdings in your portfolio to a maximum of four. Holding too many stocks simultaneously can lead to difficulties in monitoring and managing your investments effectively.
Securing Your Portfolio:
The most critical aspect of protecting your investments is to always employ trailing stop-loss limits. A trailing stop-loss order automatically sells your shares if they fall below a predetermined limit set by you. Set the stop-loss limit at 90.7% of the purchase price. By doing so, you can sell your shares before others who have set their limits at 90%, which is likely to be the majority. Additionally, set the trailing stop-loss at 85.7% below the highest price reached by the stock after your purchase. This allows you to secure your gains while limiting potential losses to a maximum of 14.3% below the peak.
Let’s consider an example: You buy an Apple stock at €100 and set your stop-loss at 90% and trailing stop-loss at 85%. If the stock price drops directly to €90 after your purchase, your broker will automatically sell it at €90.7. This mitigates your losses. However, if the stock price rises to €150 after your initial investment and subsequently drops to €100, it will be automatically sold at €128.55. In this scenario, you would have gained a profit of €28.55. This strategy outperforms the returns of a savings account or a daily deposit account.
If you find that your stop-loss limits are frequently triggered with new stock purchases, resulting in automatic sales, and you are unable to take advantage of substantial price fluctuations, it may be wise to wait until the market stabilizes and the next bull market emerges.
Taking Personal Responsibility for Your Money:
Frick emphasizes the importance of taking personal responsibility for your stock purchases and not relying solely on the advice of bank advisors, friends, or family members. While others may mean well, it is crucial to conduct thorough research and make informed investment decisions. Even if you choose to invest through a traditional bank rather than an online direct broker, it is essential to compare offers from different banks and negotiate commissions and conditions. The most important tools for successful investing are time and knowledge, followed by financial resources.
Do Not Be Easily Intimidated:
The stock market can react sensitively to political decisions and unforeseen events, leading to fluctuations in stock prices. It is important to stay informed about global events. If you experience losses, do not give up. Every successful investor has faced losses at some point. Instead of dwelling on your losses, analyze why your previous strategies did not work and take advantage of low market prices to reassess and make new investments. After every downturn, there is usually an upward phase. Remember, you are responsible for your money and decisions, so do not blame your losses on your bank, friends, or pets.
Sell Highflyers at Their Peak:
Rather than waiting for specific time frames for potential tax benefits, consider selling your stocks when they experience significant growth and you anticipate a price reversal. Even if you have to pay taxes on the gains, it is often more beneficial than avoiding taxes on losses.
Is Success in the Stock Market Predictable?
Yes, success in the stock market is achievable with courage and continuous learning. The more you educate yourself through reading websites, books, magazines, and other sources, the more experienced you become. Initial fears will be replaced by ambition and enjoyment. Utilize stop-loss orders and simulated portfolios to minimize risks. Patience is a key virtue during market downturns.
Invest in Trends and Growth Industries:
By staying informed about market trends, you can identify sectors and industries that are likely to thrive in the future. Over time, you will develop a sense for potential booms and learn which industries to avoid. However, if a particular stock has already gained significant value due to extensive media coverage or other circumstances, it may be wise to avoid chasing after it. Acknowledge that you missed the opportunity and look for other undervalued stocks.
Consider Funds as an Alternative to Individual Stocks:
If you do not have the time or prefer lower risk, consider investing in funds. These are managed by experienced fund managers and often provide higher returns compared to savings accounts and certificates. Nevertheless, it is important to thoroughly research different fund companies and banks before making any investments. Additionally, agree on a flexible withdrawal timeframe to exit the market if it experiences a downturn.
Choosing the Right Broker:
Before starting your trading journey, carefully select a brokerage platform. Compare fees for orders and other conditions to find the most suitable option for your needs. At the end of this article, we provide a recommendation for a reliable broker.
Behavioral Finance: If You Think It Will Happen, It Probably Will:
Behind every market action, there are people making decisions. Emotional thinking and behavior can lead to unpredictable market behavior. Utilize stop-loss orders to protect yourself from sudden stock drops. Exiting the market during the summer months, when prices tend to fall, can be a prudent move. September and October often present favorable opportunities for re-entry after a period of negative market sentiment. Stock splits can also be a good time to enter a company’s stock, as the perception of lower prices increases demand among individual investors.
Understanding Analyst Terminology:
When reading analyst reports, focus on terms such as “strong buy,” “outperformer,” and “buy,” which suggest positive recommendations. Conversely, terms like “hold,” “neutral,” or “underperformer” indicate that you should reevaluate your portfolio holdings.
Which Stock Should I Start With?
Choose your first stock from an industry that you understand or have a strong interest in. Conduct thorough research and consider starting with the market leader in that industry.
Should I Sell Underperforming Stocks?
Absolutely. Dispose of stocks that consistently underperform as soon as possible. Your stop-loss orders will already protect you in such situations. Let winners run until they reach their peak, and then consider selling if you believe the upward trend is no longer sustainable or if your trailing stop-loss order is triggered.
Markus Frick’s “Ich mache Sie reich” provides valuable insights into stock market investing. By taking personal responsibility, staying informed, and being prepared to adapt to market conditions, individuals can increase their chances of success. Investing in trends and growth industries, considering funds as an alternative, and understanding analyst terminology are additional strategies to explore. Remember to choose a reputable broker and be aware of behavioral finance principles. With continuous learning and perseverance, you can navigate the stock market and build long-term wealth.