Five Forces which Paralyze New Investors

These days the financial newspapers and commentaries from hedge fund managers and the financial community oozes of constant worry and occupation about downswings in the market. Sometimes this commentary is super optimistic and “stocks only go up” while currently it is gloomy because of interest rates, higher inflation, and a terrible and shocking war. This commentary paralyses some people, so they never get to invest. Are you that person, who doesn’t get to invest because the time never seems just right?

The financial commentary is one of 5 forces that prevents us "common" stock investors from investing. According to Philip A. Fisher, investor and author of Common Stocks and Uncommon Profits (one of Warren Buffett’s favorite books) the other four influences are:

 

2: Government attitude to businesses

The attitude of governments towards companies can impact the actions (or lack hereof) from beginner investors. Governments can either create laws, tax regulation, incentives, and guidelines – implement instruments that increase growth in companies or they can establish barriers for growth. These actions are done to stabilize a country’s economy. But when that happens it often influences the mood of investors that might either buy or sell on these news. Even if an individual business is still doing just great, a mass impact will put this company’s stock on sale.

"All types of common stock investors might well keep one basic thought in mind; otherwise the financial community's constant worry about and preoccupation with the danger of downswings in the business cycle will paralyze much worthwhile investment action."

Philip A. Fisher

 

3: Increase in inflation

The third fear is inflation and particularly long-term inflation. These days a company that grows 8% per year doesn’t really grow because of inflation of 7,9%. The lack of growth creates mass fear and here it’s important for you as an investor to know the company’s growth rate. This is easy to find when you know where to look and you want to find businesses that are growing at least 15% per year (regardless of whether we’re in an environment with inflation or not). Read more about this in my article: Why is investing better than saving?

 

4: Trend of interest rates

Professional investors look at interest rates when they calculate the value of businesses. I wrote about the domino effect of governments increasing interest rates in my article: Why Is the Stock Market Down Today? 

And the rise in interest rates will be a problem if a company has a lot of debt, which is one of several reasons why I only invest in companies that can pay off their debt in 3 years using their earnings.

 

So, what is a new investor to do when there’s a constant threat and fear of what might happen? The safest course to follow is one that can seem risky at first sight but in reality is so simple that everyone can follow the strategy.

 

Take investment action when a wonderful business is on sale: when the stock price is low – lower than the actual value of the company. On the blog you can read more about how to find a Wonderful Business (the easy way to get started) and When it’s on sale? – or you can fast track and take my investing course to learn how to invest like investing gurus Philip A. Fisher and the best investor in the world: Warren Buffett. 

Buffett isn’t known for selling or buying stocks based on macro-economic trends. He focuses on buying wonderful businesses, with great management and with a competitive advantage.

They don’t use difficult models, but they keep it simple. In my course I teach you how to find a wonderful business, how to calculate the stock price you should pay and explain Buffett’s strategy, so you will know it’s the right time to buy.