Stella

If you trade stocks, you (ideally) do your business research, prepare your capital investment, calculate the risk vs. reward of potential investment, and then decide whether you put in your money or not. Whether you have considered it or not, stock trading actually introduces you to the concepts of being an entrepreneur.

stock market entrepreneurs — “The richest people in the world are all entrepreneurs.”

Below are the top 5 biggest similarities between investing and entrepreneurship are:

You take calculated risks

Calculated risks are defined as the risks you take after having done your research. One of the most important business concepts is the cost-benefit analysis, where one studies whether the benefits of their investment outweighs the costs. In stocks, costs include your initial investment, the brokerage cost, the risk, and the interest you could have earned by putting your money in a risk-free investment like a savings account. Stock analysts often calculate these to the decimals, but for us normal people, we can do a simple estimate. Likewise in business, entrepreneurs have to calculate whether the thousands they invest in assets, leases, wages, etc. will give them back a profit.

2. You learn how to accept losses

If you’re already experienced with trading, you know that NO ONE can trade and ONLY WIN. It’s a fact of being a stock trader, and a fact of life, so much so that I’ve written an article dedicated to coping with your stock market loss.

In my experience as an entrepreneur, several factors such as the economy, seasonal trends, and a superspreading virus (looking at you, Covid) meant that I had months of losses that I couldn’t change no matter how hard I tried. With my venture being a food business, I also had to deal with daily losses related to spoilage. As painful as it is, both stock trading and entrepreneurship have forced my mental capacity to learn how to accept losses. And with enough experience, you soon learn your best way of coping and how to minimize your losses for future transactions.

3. You learn the importance of external forces

When I first entered the stock market, all I thought about was picking the right stock at the right price, and I calculated in my head how much I should be getting back in a few months. As I was there excitedly studying fundamental and technical analysis because I wanted more money (who doesn’t?!), the country’s elections started and my stocks took a dive. Sad to say it was a surprising lesson when you forget that you aren’t the only person doing stocks.

As you invest, you soon start to realize that things such as the government’s budget, China’s trade war with other countries, natural calamities, and even smaller things such as the interest rates of bonds, unemployment rates, and inflation rates can cause massive sell-offs worth billions of dollars in stocks or the other way around.

Realizing how much external factors affected my stocks made me feel less responsible whenever my stocks collectively dive, and less i-am-a-genius-mwahaha when all my stocks skyrocket. Likewise, when I closed down my food business due to Covid, the lesson I learned in stocks meant I wasn’t too gutted – sometimes, it’s just how the world works. Heck, these days, even Reddit can make your stock gain 1700% in a month (that’s 17x)!

4. Your decisions can make or break you

Contrary to the previous point, being an investor/entrepreneur also opens you to some big decisions that you are solely responsible for. Unlike being an employee in a company where your decisions affect just a few departments, choosing where to invest your money in can greatly affect the course of your earnings. One wrong decision in a company would usually only lead to a file note or a chat with your boss, while a bad choice in investments could make you lose your entire fortune.

The added responsibility of being an entrepreneur dawned on me when my newly opened business was not doing as well as I had planned. I was waiting a few days for it to get better – and I just realized that nothing would happen if I personally did not decide to increase marketing, expand my distribution channels, and create special promotions.

While this point sounds scary, every choice you make can also ADD to your paycheck directly; quite unlike making a winning decision as an employee, where your company earns exponentially more while you receive pennies they call “bonuses”.

5. Everything you do is for you

Everything above ties up to this last point – every action you take and every consequence you experience affects you and only you. There are no co-workers in stock trading nor bosses in entrepreneurship.

love stock investing — “Self-love, ahhhh.”

And that’s a good thing. Everything you earn is yours to keep and all the success you make can proudly be called “yours”.

You should now think and act like an entrepreneur – because you are one! If you wish to learn different types of investment vehicles, check my article on stocks, bonds, and ETFs!

Keep Reading

This article on investments is the first of a series of three, introducing you to financial instruments that could make your money work for you.

If all your money is either stuck in a savings account or a transactional account, this article is for YOU. However, even if you are familiar with stocks, bonds and ETFs, I highly recommend a read of this article so you may understand your stocks and bonds more.

I am also publishing my article for intermediate investors to introduce options, futures and swaps not too long from now, and I’m planning an advanced article on CFDs, MBSs, and REITs as well (you know it gets complicated when you start reading random letters).

But for now, let me introduce you to the most basic, most invested financial instruments.

Table of Contents

1. Stocks

To introduce you to stocks, let me start with a little story-telling.

Long long time ago, the Dutch people went on voyages in order to trade silk, coffee, spices, and wine. In order to help fund their growing expeditions, they decided to sell coupons to the public with the terms that the people who bought the coupons would be investors of the voyages, and the profit made from the expeditions would be distributed to the owners of the coupons accordingly. As the expeditions grew and the news spread, the buying and selling of the coupons amongst the public became unavoidable, the prices of the coupons fluctuated depending on supply and demand.

stock history — “We shall voyage and become billionaires!”

The people who went on voyages were all under the historical Dutch East India Company, and the selling of coupons became the first ever IPO (initial public offering). The coupons released by Dutch East India became the first ever publicly traded stock, and the profits that they distributed at the end of their voyages were what we now call “dividends”.

Despite all these happening back in the 1600s, the stock market we have now still works in exactly the same way. Companies try to raise more money by issuing stocks (coupons) to the public, and after this initial offering (the IPO), the owners of the newly issued stocks then enter the stock market in order to buy and sell these stocks to other interested investors. Hence, stocks are also called “shares”, because owning stocks entitles you to “shares” of a company’s profit when they distribute them to the stockholders.

Nowadays, most people trade stocks in order to profit from the movement of the stock’s price rather than for the dividends the companies give out. The company who originally issued the stock does not earn or lose from the movement of their stock price, as they only get the amount they raised from their IPO, but events surrounding the company may affect their stock price significantly. Seasoned investors thus tend to put their money into stocks that have good potential and high earnings in order to profit from a good dividend return and a higher stock price for when they sell off their shares.

If you want to know about Warren Buffett’s highly successful investing style, I highly recommend reading my article on the 3 steps to Warren Buffett’s value investing.

2. Bonds

Similar to stocks, bonds are also used by major companies and the government to raise funds. Like stocks, they are released through a public offering and may also be traded on a market (a secondhand bond market).

However, the main difference lies in ownership: owning a stock means a person partially owns a company while owning a bond means the person is lending money to the company or the government.

Interesting, hey? Now you just have to think whether you want to say “I OWN APPLE”, or, “I LEND MONEY TO APPLE”. I personally think both are pretty cool.

apple stock — Maybe I owe you money, maybe you own me… I don’t care because I’m still worth trillions more than you are!!!

When one puts money in a savings account, that person actually loans money to the bank – this is the reason why banks pay interest. In the case of a bond, you receive a set rate of interest as well, but unlike the banks, you have to hold the bond until the maturity date in order to get your entire investment back. This is the reason why bonds tend to pay more interest than banks do, as bonds can range from a year of holding to 10, and maybe 20 years.

As an investor, the most important things you need to know about bonds are the interest rate, the length of time till maturity of the bond, and the credit rating of the bond.

Bonds are a complex subject, so if you think they’re a good idea (I highly support that!), then YOU MUST visit my painfully-written article explaining more about how they work and where to buy them here.

3. ETFs

ETFs are the last in this beginner article, but one all financial experts would recommend to beginners. ETF is short for “exchange-traded fund”. Funds are essentially a basket of several financial instruments. In noob terms, if you went shopping and put 10 different meat items into your basket, finance people would call that a “meat fund”.

etf is a basket — “They fill me up and decide to call it a fund.”

As such in finance, we have funds that focus on stocks, corporate bonds, government bonds, and many more. Stock funds can even be broken down into “Tech funds”, “Consumer goods funds”, “Banking funds” and countless others. Bond funds can be broken down into long-term and short-term bonds, high-interest bonds, etc. “Exchange-traded” just means that you are able to buy and sell these funds on the stock market.

ETFs are highly recommended due to the fact that they lessen your risk. In Finance, risk is described as the volatility of a stock, or how much a stock goes up or down. It has been mathematically proven that by diversifying the stocks you own, you lessen your exposure to risks such as industry-specific risks, management risks, location risks, and all other types of risk. As such, by investing in a fund of stocks rather than just one specific stock, you get the highest return for the least amount of risk.

Now you may ask, “but but… you said there that risk is volatility and it means how much a stock moves. I want to go for higher returns!”

My friend, this is why financial experts recommend ETFs mostly to beginners – if you think you are ready to take on more risk for the chance of higher returns, then by all means, you are free to do so! Just remember the famous words of wisdom… don’t put all your eggs in one basket.

It is important to note that all ETFs are funds – but not all funds are ETFs. You will come across the terms mutual funds and hedge funds regularly while investing. These are funds you apply for directly with the institution that manages the funds, and they manage your money by distributing it proportionately to their own basket of financial instruments. ETFs only consist of funds that you can buy on the secondary market. This article introduces you to the different other types of funds.

Hope you enjoyed this article! I will be talking about Options, Futures, and Swaps and CFDs, MBSs, and REITs, in the next ones. Stay tuned!