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