Author also talks about 'Cocktail Theory'. This is known as 'Penultimate Preparedness'. Author says that when it comes to being prepared for stock market mishaps, we are always preparing for the last disaster that occurred and not anticipating and planning the potential disasters. Most of them finally invest exactly at the wrong moment. Many people wait for the right time to invest in market. Author also emphasizes against going by 'Gut Feelings' and wants the investors to do thorough research and stand by the stock as long as the story is in tact. In addition, you should develop the capability to take decisions without complete or perfect information. Some of the personal characteristics include patience, self-reliance, common sense, open-mindedness, detachment, persistence, humility, flexibility, a willingness to do independent research and ability to ignore general panic. Third aspect to consider is whether you have the personal qualities required to become a successful stock investor. Those should be handled through debt instruments and money market instruments. Stock investing should not be done to meet short term financial goals. Second thing to consider before investing in stocks is whether you need money in the short term. Another point is that we do a lot of analysis and evaluation before we buy a house and no analysis before buying a stock. One key point that is made in this chapter is that people tend to buy and hold houses over a long-term unlike stocks which are purchased and sold over a very short term. Historically houses have been an appreciating asset. Another is that there are many tax benefits to buying a house. One is that you get almost 80% loan from the bank and your investment is only 20%. There are many advantages to buying a house. One is to purchase a House before investing in stock market. Are there some steps that I have to take before I start investing in stocks? As per Chapter 4 of the book, there are three things to consider before investing in stocks. Another related point is that if you focus on curtailing the risk, you will end up getting lower returns on your investment. Fourth, with regard to the point whether Debt Instruments are less risky, author points out multiple instances when runaway inflation made the investment in debt almost worthless. Author points out that we tend to spend more time evaluating our decision to purchase a piece of clothing than we spend in deciding which stocks to invest in.
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(Check out this story of Mrs.Preeti Malhotra) Third, amateur investors invest in the stocks without doing the proper due diligence. Second, as to the question whether stocks are a gamble, author points out that retail investors enter the market when it is high and exit the market when it is low and this is precisely what makes it a gamble. First, stocks have significantly outperformed most of the other investment avenues over the long-term. The author makes multiple points relating to the above questions. Isn't investing in stocks a gamble? Isn't it risky? Am I not better off investing in Debt Instruments? These are some of the questions addressed in Chapter 3.
#Summary of one up on wall street professional#
The other constraints that a professional faces which an amateur do not face are: Constraints of rules and regulations of the Organization that she works for, Having to spent considerable time convincing potential customers on the logic of his investment picks, huge size of the assets to handle etc.