Have you heard of Lusha? Lusha, a Moscow resident, put together a stock portfolio that beat 94% of all of Russia’s mutual fund managers. That’s an impressive feat for anybody and in the investing world, when you’re successful everybody wants to know how you did it. Lusha is certainly the Russian equivalent of an Ivy League educated financial graduate who has worked for all of the biggest investment firms in the world. She was probably hand picked to be the next greatest investor and making big money with each of her equally brilliant stock picks.
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Would you be surprised to know that Lusha has no formal investment training? Lusha has never been to college and knows nothing about investing. Lusha is a chimpanzee who makes a living riding a scooter in a Russian circus yet she beat 94% of Russia’s brightest investing minds. All she did was pick six random stocks from a list.
Is investing really that easy? Anybody who has been in the market for any period of time knows that making money in the stock market is far from easy but that might be because they don’t follow some basic, time tested rules.
Hold On
There are two types of investors: traders and investors. Investors understand that true wealth comes with time. Numerous studies have found that beating the market is an impossible task for anything more than a short term win. The only way to truly make money over the long term is to stay invested. Hold on to your stocks and let them appreciate in value over time.
The second type of player in the market is the trader. Traders are becoming the new normal in stock exchanges around the world and financial television would have you believe that the only way to make money is to make short term trades where profits are realized quickly. It might be more thrilling but for most, it isn’t profitable over the multi decade timeframe that people need to build wealth.
Diversity
Every investor has seen a big win from time to time. A stock suddenly rises 10% or 20% in one day giving the impression that more money should be poured in to that stock or sector. A professional golfer doesn’t practice for holes in one. They know that those events are more a function of good luck than skill. Instead, golfers practice skills that will put them in the best position to maximize success. Getting it close to the hole is more important than trying to land the hole in one.
Investing is the same way. When you don’t diversify your portfolio, you’re trying to land the hole in one. Spreading your money across asset classes, specific stocks and even different investment products puts you in the best position to see those steady gains. You’ll certainly have those days when a stock is up 10% but you’ll have equal amount of days where a stock is down the same amount.
Dividends
The stock market doesn’t give you much for free but dividends are the closest thing to free money. Although dividends aren’t completely safe, they tend to be much less volatile than growth stocks. If you could almost guarantee that you would receive a 6% return this year just from holding on to the stock, wouldn’t that be more attractive than holding a non dividend paying stock that might see an 8% gain?
If you’re looking to make a lot of money in the stock market, you have a much better chance of doing it with dividends than you do with growth stocks. If your money is going to be tied up, get paid for that. Limit the amount of growth stocks in your portfolio. Diversify your growth stocks with dividend stocks.
Do Your Research
Lusha didn’t have to do any research but she didn’t pick stocks that she expected to hold for many years. If the experiment would have gone on much longer, Lusha’s performance would probably end up the same or slightly lower than the 94% of people she beat. Random stock picking doesn’t work. You have to know what you own and why you own it. There might come a time where you have to sell the stock based on your research.
Finally
Don’t fall in to the trap of, “things are different now.” The markets still rewards the patient and punish the greedy. If you want to gamble, play the slot machines but if you want to make money over time, the stock market is the place for your money.
photo credit: etsy
David is the Co-Founder of