The stock market is growing over the years and offers hundreds of earning opportunities. It allows brokerage companies to attract thousands of people to exchanges. The attraction often consists in a simple recommendation to make money on the rise in prices. It's not bad for beginning... But we are in favor of a deeper and wiser approach. The call to "buy what grows" without clarification of details blurs the line between investment, speculation and trading. In all three cases, people make money by raising prices. But this does not reveal the true philosophy and advantages of investing. Let's figure it out to understand:

Who is an investor

Note that many of the facts below apply to professional investors. In fact, investing is quite simple, and it is available to ordinary people, regardless of education and profession. But it is helpful to look at the way of mind of a professional investor in detail.

People have long confused investors and speculators. Benjamin Graham, the teacher of the legendary billionaire Warren Buffett, actively pointed to this. The difference needs to be understood. After all, your ability to follow an important rule of long-term success on the exchange depends on this understanding:

“Be careful when others are greedy. Be greedy when others are afraid.”

The investor finds companies with fundamentally strong businesses, which real value is much higher than the current share price. The market undervalues the company at the moment. On the basis of his analysis, the investor sees the upside potential and factors in a future. This is why he is buying shares.

Thereat:

Investor is not afraid that the selected securities have become cheaper over the past day, week, month or even a year. On the contrary, he is glad of the discounts and the shortsightedness of the crowd that put the price of the amazing company so low. In this case, our hero is rightly "greedy", he wants to get great shares at a great price.  

He is "afraid" when the media trumpets about the company for months ... When analysts of all investment houses in a row compete to raise target prices for its shares ... When the price of securities has already increased many times, renewed all-time highs and goes off scale in all coefficients.

Investor is not afraid of most of the news that could make the shares fall. Unless it's extremely bad news about a company fraud, a government investigation, or something like that. 

Often, the market makes a mountain out of a dust speck. Between 2015 and 2017, Chipotle Mexican Grill's shares fell 64%. The price was knocked down by the news of the infection of visitors to some CMG restaurants with E.coli, salmonella and norovirus. Unpleasant... But before this collapse, the company generated $ 4.5 billion in annual revenues and $ 475 million in net profit. The infections had no relations with a strong business model. When the sanitary matters were resolved, the shares fully recovered and brought in another 60% return on top. In total, they have grown from $ 280 to $ 1187 during 2.5 years! And the growth continues.

It is not important for an investor whether the purchased shares will continue to fall during the day, week, month... As long as the company's business remains strong and in demand, the market price fluctuations are not important. “In the short term, the market polls. In the long run, it weighs." The shares of a really high-quality company will surely recover one day after any hysterical sell-off done on emotions.

Investor doesn't care how the broad market feels. If the S&P 500 index fell 3%, it does not force the investor to pull his hair out and frantically sell everything.

Investor invests for a long time. He wants a one-year return from the company. Sometimes, from five years. 

"Our favorite time to sell shares is NEVER," Warren Buffett talks about his strategy.

And this is correct, because the investor is in no hurry. He wants not to "hit the jackpot" or "cut some money quickly." He achieves a systematic increase in his capital. And he often invests in dividend stories in order to receive additional cash flow from the company.

Investor does not depend on the success or failure of one company. Even if the idea turns out to be completely wrong ... If new unexpected factors hit harm the company's activities and its future ... The investor will only lose part of the funds and will not feel it. Because he distributes capital between different instruments, sectors and industries: makes up an assets portfolio. 

As a result, some shares may fall in price, but the growth of others will compensate for this drawdown and allow to make money.

Investor revises the portfolio once a quarter, six months or even once a year. He does not fuss, does not read dozens of news about all his companies every day. Doesn't blanch with thought that the quarterly report of one of them was released yesterday, and he hasn't read it yet. This also translates into lower costs. Infrequent portfolio revisions, infrequent trades, less commission costs.

Investor aims for realistic returns. There are two basic types of investors.

A passive investor seeks to preserve his funds and receive income from investments above inflation. At the same time, he tries to spend a minimum of effort, time, skills and knowledge on the search for investment ideas.

An active investor wants to outpace the broader market return. Or at least match it. On average, we are talking about values of more than 10% per annum in US dollars. But in some years, the market grows by 20-30%. To consistently exceed such results, it requires much more work and enthusiasm: you need to study the business of companies, read their financial statements, draw up criteria for the systematic selection of investment ideas.

But even when striving for more aggressive returns, the active investor understands that 30% per annum is already very good. He does not chase hundreds of percent a year, because he knows that such return can only be consistently obtained with a constant high risk. The investor does not need it, he strives for long-term preservation and gradual increase in funds. 

The same Warren Buffett holding, Berkshire Hathaway, brought an average of 21% per annum for 52 years. Not hundreds or thousands of percent.

So, who is an investor?

This is the most calm and patient market participant. With his own opinion and far-sighted prudence. He often goes against the mood of the crowd. Not chasing hype and "hot offers". Doesn't buy on active growth. Looks for opportunities when everyone panics. He often invests in “unpopular” companies.

Being an investor means:

• Gradually adjust the work of your capital and distribute risks well;
• Analyze the market at a leisurely pace;
• Be able to combine investment with another job or business;
• With a high probability of "surviving" in the market for a long time.

Freedom Finance will help you to become an investor.