Q&A: Can I Get Rich Trading in Stocks?

Actually, the fuller text of this reader question is: "Can I get rich trading in stocks? If I invest N3 million in stocks today, how much am I likely to get in a year's time? I read in Financial Standard about a seminar where they will teach participants how to make 100 percent monthly, is it true?"

These are very important questions that could similarly be on the minds of other readers. We have privately responded to our reader who raised the questions, but here is to share some of that response with everybody else:

We appreciate your interest in our website and the resources we are providing and hope you will invite your friends to access them too.

Regarding your questions, first, as to how much your N3million will turn into in a year's time, the sincere answer is that nobody can tell you. Theoretically, it can become zero or N10 million or even more. The stock market has the ability to produce such results, because stock values are driven by the market. Unlike investments in instruments like bonds, treasury bills and even bank deposits, stocks don't have a fixed principal amount. It can go substantially up in value or loose value completely. The latter will happen if you invest in a wrong company which suddenly dies. Stocks provide a lot of excitement because of these wide possibilities. That's why it is, to an extent, a market for higher risk-takers. All investments entail risk and there is always the possibility of loss of capital, but stocks are believed to have a higher risk profile than the other financial assets I just mentioned. At the same time, a lot of people have built massive wealth over time, in all parts of the world, just by investing in the financial markets. Part of the reason is that there are techniques you can learn for managing risk and making sound investment judgement. It's, therefore possible to make a lot of money, but however, that's not an overnight miracle or even a guaranteed result.

I have taken time to highlight these realities because, from the outset, it's important you understand them. Investment, especially in stocks, has the potential to make you very rich: that continues to happen, all the time, to a lot of serious investors. It is however possible to lose money, because stock prices do go down. You need to be mentally prepared for all that. More importantly, you need to be technically prepared as well. By the latter, I mean that you need to really open your mind to the investing process and try to learn as much as possible. You also possibly need to approach a financial/investment adviser to guide you. Whatever the case, you will need to work with a stockbroker since you cannot buy or sell stocks on your own. Your stockbroker is likely to be willing to provide some investment advice, along the process. You also need a lot of information about companies and that means beginning to read up or listen to things that affect those companies. Such things often affect their share prices and consequently, your stock investments.

If you do choose to invest in stocks, my advice is that you see that, not as gambling (or speculation) but begin to choose companies you want to invest in their future and be part of their ownership, at least for a while. Your question suggests the mindset of speculation and that could hurt, especially if you are led to seek companies that will double in value in a short space of time. Nobody guarantees that. What seems to work most is to invest in good, well-selected companies (whose earnings, for instance are strong and growing and the current price reasonable) and wait for the returns to come. Our preferred approach is to give it some time to mature. Wanting immediate results is more of price speculation. Investing is more interested in the quality of companies and their future value. People can make money speculating on prices, but you need more involvement: tracking, trending and trading more consistently. That could be very demanding if you are not a pure stock trader.

Finally, the advice you saw about earning 100% return monthly doesn't need any expertise to discern that it is phoney. Purely fraudulent. Such returns can occur accidentally, occasionally. Some stocks have doubled in value in a single month sometimes, depending on the underlying factors. However, any attempt to offer such returns on a guaranteed regular basis is a clear effort to deceive and obviously fleece hapless individuals off their capital. I'm sure you don't want to dash out your hard-earned money. Investment takes time to yield results and that's how genuine things work. If you are much in a hurry, be prepared for possible significant losses. The reason is that your risk profile will be extremely high, meaning that the potential for loss of capital (not even profit) will be huge. Wise people don't go that way.

I hope you will pick a few points out of this. Whatever happens, ensure to protect your capital each time you seek to invest. That means taking measured risks. Wide returns promises don't support that position, so it's better to just aim for reasonable returns. Also important is that you understand each business you invest money into. If you invest in Guinness, you know what they do. That goes for Bank PHB, Cornerstone Insurance or WAPCO. If somebody offers you awesome returns, take them to task to explain how they will generate the money from which to make their own profit and still pay you the mouth-watering returns. Anyway, the simple point is they want your mouth to 'water' so you can surrender your savings and be a loser!

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